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Commoditizing air freight 24

Liner carriers squeezed 30

Shore power disruptor? 48
From trolley to eHighway 58
Export Compliance and Operations Benchmark Study:
Port investment brightens,
but outlook remains cloudy
for toll roads, airports
and other public assets
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Shore power disruptor? 48
In an effort to reduce air pollution, West Coast
ports and shipping lines have spent hundreds
of millions of dollars to install electric substations
on docks and retrofit vessels to receive power
from shore. However, a promising new system
being tested at the Port of Long Beach could
prove to be a much cheaper alternative.
U.S. infrastructure climate 38
Businesses, economists, and policy experts
say there is a crying need for government
to invest in infrastructure because it is
a foundation for economic growth and
makes U.S. exporters more competitive in
global markets. Meanwhile, federal, state
and local governments face limited funds
and anti-tax sentiment.
Cultivating supply chain talent 8
CSCMP, universities prepare graduates.
Say cheese 11
Positive U.S. dairy export growth.
WTOs Bali honeymoon over 13
Indias refusal to sign trade agreement.
Shippers IT 15
Turning quotes into profit.
Executive IT Corner 18
What does 3D printing mean?
First Sale in crosshairs.
Avoiding disaster.

Marine highway for chemicals.
Pumping up truck rates
Looming triggers.
From trolley to eHighway
Overhead-wired trucks.
Comments & Letters 2
A columnists farewell.
New York/New Jerseys chassis blues?
Exercising just-in-case logistics. 4

The Strategic View 16
The ultimate global logistics challenge.
Shippers Law 60
Gone missing.
Corporate Appointments 62
On Second Thought ... 63

Georgia takes bite out of cargo crime.
Editorial 64
Supply chain, a best kept secret.
On the Cover
September 2014 Vol. 56, No. 9
Squeezed 30
While there are some signs that the economy is
improving in the United States and Europe, the
container industry will likely continue facing
challenges in coming years because of surplus
capacity as carriers continue to add larger,
more efficient containerships and looming
requirements to use more costly, cleaner fuel.
Commoditizing air freight 24
This fall two logistics executives will launch
the first weekly air cargo pricing index, dubbed
the TAC Index, concentrating on key air cargo
lanes out of Hong Kong. The index is expected to
allow shippers using this form of transport to
benchmark rates on these lanes, and eventually
open the market to commodity trading.
American Shipper
content available at
American Shipper
Export Compliance and Operations
Benchmark Study: Navigating
a Post-AES World
American Shippers latest research
initiative is developed in partnership with
BPE Global and AAEI. Read the executive
summary on p. 6, or the full report at
An American Shipper columnists farewell
Last year, I retired and Im about to retire again, and this time from writing for
American Shipper. Ive been writing a regular column for the publication for a
couple of years and thoroughly enjoyed the experience. But its time to pass the pen
to someone more active in the field.
Its too bad that more people in our industry dont write. I did it, because it was
fun and interesting and for the responses that came to me from American Shipper
readers. Besides, it looks pretty good on a resume.
Over the years, Ive written many articles for magazines, newspapers and internal-
use corporate newsletters. Looking back, I see improvements that could be made in
each of my articles, but thats as it should be if you read something you wrote two
years ago and still like it, perhaps you havent learned much in the interim. So, with
special thanks to American Shipper and the readers who responded to my columns,
Im taking one more step to really retiring.

Alan F. Spear
Cargo logistics security consultant,
Alan F. Spear, LLC
Batavia, Ill.
Answer to New York/New Jerseys chassis blues?
Last year might be one both shippers and transportation companies moving cargo
through the Port of New York and New Jersey would like to forget. Congestion got
so bad in the summer of 2013 that one carrier, Hapag-Lloyd, actually suggested
customers reroute cargo to other ports. The winter was also difficult, with snow
and ice snarling traffic in those container terminals.
The Port of New York and New Jersey organized a Port Productivity Task Force
last December to address problems within the port and issued a report in June with
a large number of recommendations. A Council on Port Performance (CPP) was
created to implement those ideas.
One CPP subgroup is tackling issues surrounding intermodal equipment, seek-
ing a way to implement the task forces recommendation that the industry create a
market pool for chassis.
Keith Lovetro, chief executive officer of TRAC, the countrys largest chassis
company and operator of the largest pool in the Port of New York and New Jersey
the Metro Pool, said CPP will address the details of how to create such a market
pool, including who will actually run it.
The market pool would be a port-wide pool with interoperability, meaning chassis
could be used to move boxes that come from any of the terminals or liner carriers
in the port.
The pool would not set prices, nor collaborate about anything that has to do with
commercial relationships with customers. Members of the pool would still compete
with each other, but the task force thought a market pool could help solve some of
the problems the port experienced with lack of equipment and imbalances last year.
Lovetro said there are a variety of reasons why the port has constraints in chassis
today. In addition to the number of chassis in the port and lack of interoperability,
he said the mechanics who repair chassis are not always where the chassis that need
to be serviced are located.
Just as some ports handle more imports than exports, or vice versa, terminals within
a single port like New York/New Jersey have surpluses or deficiencies of chassis.
Of the five terminals in the port, two tend to be heavy on exports and accumulate
chassis, while the other three receive more imports and run shortages of equipment.
U.S. phone (904) 355-2601
U.S. fax (904) 791-8836

CEO/ Hayes H. Howard
Publisher Jacksonville Ext. 16
Editorial Christopher Gillis, Editor
Washington Ext. 5
Eric Johnson,
Research Director & IT Editor
Washington Ext. 3
Eric Kulisch,
Trade and Transportation Editor
Washington Ext. 7
Chris Dupin,
Maritime and Intermodal Editor
New York Ext. 6
Jon Ross,
Air Cargo and Logistics Editor
Atlanta Ext. 8
Research Benjamin Meyer
Analyst Jacksonville Ext. 27

Vol. 56 No. 9 September 2014
American Shipper is published monthly. Published
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Editorial Board
Brian Amero
corporate trade compliance manager,
Teradyne Inc.
Timothy D. Brotzman Sr.
manager of international transport
and DG compliance,
McCormick & Co. Inc.
Joseph Burks
manager, global trade
Brenda Chenault
import/export compliance consultant,
Joseph L. De La Luz
general manager, trade compliance,
NEC Corp. of America
David Fisher
director, global logistics,
Johns Manville
Rick Gabrielson
vice president of transportation,
Lowes Cos.
Alison Leavitt
managing director,
Wine and Spirits Shippers Association
Doug Gray
general manager, International
Transportation Operations
Caterpillar Logistics, Inc.
Patrick Halloran
director, global trade logistics
Cardinal Health
Maryanna Kersten
global ocean procurement
and partner management,
global logistics regulatory
and compliance,
Hewlett-Packard Co.
Charles Smith
general manager of global
transportation, Interstate Batteries
Virginia Thompson
sr. director of import/export operations
and international trade compliance,
Euromarket Designs, Inc.
American Shipper welcomes letters from readers.
All letters become the property of American Shipper,
which reserves the right to edit them. Include your
name, position and company affiliation (if applicable),
location, a daytime telephone number and e-mail
address. E-mail letters to:
Press releases are welcome and may be e-mailed
Letters to Editor/Press Releases
Meanwhile, Lovetro outlined steps TRAC is taking on its own to improve the
supply of chassis in the port, including:
Adding about 2,000 chassis to the N.Y./N.J. Metro Pool fleet of 21,000 this
summer. The company estimates that it has about 63 percent of the 33,500 chassis
in the New York/New Jersey area.
Increasing the number of chassis being repaired by paying more mechanics
to work overtime.
Creating a system where it loads chassis that need to be repaired onto flatbed
trucks and taking them from terminals where they have accumulated in terminals
where there are enough mechanics to fix them. Such moves used to be done on a
sporadic basis, but Lovetro said the company is creating a system where chassis
will be relocated on a daily basis.
Refurbishing older chassis in TRACs container yards sandblasting and
repainting them, putting in new air supply and hydraulics so that they are like
new. The company has contracted for 1,800 refurbished chassis over the next 12-
18 months and is looking for another contract to refurbish another 1,000 chassis.
The structure of the market pool who will own it and how it is governed is
a subject of discussion among members of the CPP.
Lovetro supports the idea of having qualified companies bid to manage the pool
and said TRAC would hope and expect to win such a contract but adds, with
an open bid you can never be sure theres probably three, four companies that
would want to put their name in the hat to try to win that bid. Let the best man win.
Lovetro is optimistic about the future of the Port of New York and New Jersey,
saying the whole focus of both the task force and CPP was to create an environ-
ment that allows that port to grow.
Are we making headway? Yes we are. Have we fixed it all yet? Not yet, but at
least weve got a lot of folks with a lot of effort pushing to solve the problem, so
from that perspective Im pretty encouraged. (Chris Dupin)
Exercising just-in-case logistics
As of mid-August, there has been remarkably little information coming out
of talks between the International Longshore and Warehouse Union and Pacific
Maritime Administration over a new contract to replace the six-year pact that
expired July 1.
How to pay for the Affordable Care Acts tax on high-cost healthcare plans has
been one topic of discussion, but little else is known about the talks.
Despite shippers urging an early start, negotiations began in mid-May. PMA
officials said past experience showed contract talks have seldom made much prog-
ress until a deadline looms, and they predicted negotiations might extend past the
contract expiration date, as they did.
The good news for shippers has been that the ILWU and PMA have been true
to their pledge they would keep cargo moving, while the contract talks continue.
That does not mean lack of agreement is going unnoticed.
The negotiations appear to be going well but each week that goes by makes
the situation more critical as the holiday season approaches, Jonathan Gold, vice
president for supply chain and customs policy at the National Retail Federation,
said in early August. Retailers are making sure they are stocked up so shoppers
wont be affected regardless of what happens at the ports.
A monthly report on container traffic prepared by Hackett Associates forecast
a record 1.54 million TEUs of imports the highest monthly volume since 2000
would move through major U.S. container ports in August. Ben Hackett said
the increase reflects not only an improved economy, but also the labor negotiations
with importers moving up shipments just in case.
And in early August the bond rating agency Fitch said an ongoing risk of
a strike or work slowdown at West Coast ports may already be diverting cargo
to other distribution methods and setting the stage for broader economic
If a shift in cargo were to persist from weeks into months, some shippers may
continue to use alternative ports even after the ILWU contract is finalized and the
risk of a strike or slowdown has passed, Fitch said. (Chris Dupin)
Georgia Ports Authority has been able to
provide a single terminal in one location
that allows us to go in and out of one spot
regardless of the carrier, regardless of the
chassis, regardless of the dray provider
to come out in one seamless move. That
sort of forward thinking by the Georgia
Ports Authority has really provided us the
opportunity to have that seamless execution.
Id probably call it best in class, as it relates to
turn times and our drivers being able to come
in and out in a pretty rapid manner.
Reade Kidd Home Depot
Director of International Logistics
Get the whole story at GAPORTS.COM/HOMEDEPOT >
See why the fourth-largest retailer in America and fth-largest in the
world depends on the single-terminal advantage to import 20% of its
U.S. freight through Savannah.
In their own words
elcome to the fifth annual bench-
mark study covering U.S. export
operations and compliance, pro-
duced by American Shipper in partnership
with BPE Global and the American Asso-
ciation of Exporters and Importers (AAEI).
The theme of this years study centers
on how shippers are handling their export
processes in the aftermath of Automated
Export System (AES) deadlines, the latest
updates of which went into effect last year.
Despite attempts by the U.S. government
to streamline the export regulation and
stoke growth of exported goods, it remains
a tricky and evolving process. In particular,
this report examines how companies handle
their Electronic Export Information (EEI)
filings; whether exporters are involved
in strategic considerations like product
introductions, mergers, and new markets;
and the extent to which technology investment is available to
automate export functions.
The study includes input from 282 U.S.-based exporters, with
responses gathered between late March and late May 2014. The
30-question survey covered export regulatory reform, operations
management practices, organizational structure, compliance
policies and strategic considerations, and export management
Strategic Considerations. For the first time in five years
of this survey, export compliance is being included in strategic
discussions regarding mergers and acquisitions the majority of the
time. This bodes well for companies that are expanding into new
markets and product lines by buying or combining companies.
By including export compliance in these discussions, companies
can perform their due diligence to determine any export-related
risk with the new business and identify whether disclosures might
be required by the other company. However, 43 percent are not
being included in these discussions at all.
Meanwhile, almost 60 percent of respondents report that they are
always or frequently included in discussions about new markets,
compared to 53 percent last year. This is a promising trend and
shows that exporting companies are increasingly valuing export
compliances input.
EEI Filing. This years report has a specific focus on export
declaration compliance. Exporters who do not declare their own
EEI filings take a risk in allowing a third party to do it for them.
Typos and other mistakes can happen by third parties and exporters
dont always review the filings to catch them. The majority of
systems-based exporters utilize internal staff to file EEIs versus
2014 Export Compliance and Operations Benchmark Study:
Navigating a Post-AES World
An American Shipper study in partnership with BPE Global and AAEI
manual-based exporters, who use their carriers to file for them.
Systems-based exporters, who have some level of export
automation in place, use the web-based AESDirect system 54
percent of the time to file their EEIs. This indicates that their
export compliance software does not have AES filing capabilities,
or they did not buy AES functionality. Its also a little unsettling
that 8 percent of systems-based, and 11 percent of manual-based
exporters, were uncertain how their EEIs are being filed. This
might indicate that the filings are performed by a different
department, such as logistics, so they dont have visibility to
this process.
The majority of both systems-based and manual-based exporters
review their EEIs filed either internally or by their carriers. This
demonstrates that a strong compliance program is in place for
these exporters. Customs and Border Protection is beginning to
enforce penalties on incorrect and late EEI filings so it behooves
exporters to ensure their declarations are filed correctly and

Technology Usage. The fragmented nature of export system
(or no system) choice has actually held pretty steady over the five
years of this study. The idea of using a third-party technology
provider to supply global trade management software has grown
steadily but it is by no means the most popular path yet. Fewer
than one in five companies use such a provider.
Exporters are indicating they are slowly getting away from a
mix of licensed, software-as-a-service, or custom-built technology
and starting to focus on one pricing model. There was a noticeable
uptick from 2013 to 2014 in respondents use of all three of those
models, and a corresponding decrease in the number of respondents
saying they use a mix.
Register and download the report at
Source: American Shipper Export Compliance and Operations Benchmark Study.
How Are EEIs Filed?
Uncertain Via a third party software application Via AESDirect applications
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s the field of supply chain manage-
ment becomes ever more important
as a competitive differentiator
among the worlds leading companies, so
does the necessity to attract the brightest,
most capable talent in the field.
The problem is the supply of talent is
not sufficiently keeping up with demand,
according to recent studies conducted by
the Council of Supply Chain Management
Professionals in partnership with Auburn
University and Central Michigan Univer-
sity. Many companies are also grappling
with how best to recruit suitable individu-
als, especially from university programs,
to manage their increasingly complex
supply chains.
When I came up in this industry, I fell
into it like most of my peers, said Rick
Blasgen, president and chief executive
officer of CSCMP, in a recent interview.
Were now trying to make this a destina-
tion career.
Companies, now more than ever, need
to hire the best supply chain managers and
staff. This creates demand and thus the field
becomes ever more disciplined, he added.
The U.S. Bureau of Labor Statistics in
2012 reported that employment of individu-
als specializing in supply chain will grow
by 26 percent between 2010 and 2020, faster
than most other occupations. Employment
growth will be driven by the important
role of logistics in an increasingly global
economy, the federal agency said.
However, the caliber of person sought to
fill these supply chain positions is more dif-
ficult to find than many companies expect
once they commence the hiring search.
Compared to other professions, like
accounting and finance, it is no longer
enough for supply chain professionals to
be functional experts, CSCMP and the
two universities stated in SCM Talent
Development: The Acquire Process, part
of a series of three inter-related reports.
The managerial decisions that must be
made in these interdependent environ-
ments are often dynamic, complex, and
time sensitive.
Many universities throughout the coun-
try have formed undergraduate and gradu-
ate degree programs with a supply chain
management discipline. Its estimated that
there are about 40 university programs
that focus on logistics/supply chain man-
agement, according to Gartners Top U.S.
Supply Chain Undergraduate University
Programs, 2014. However, there are many
more university degree programs that
cover supply chain from more of a manu-
facturing and operations management
One of the oldest degree programs in
the country is offered by the University
of Tennessee. The schools program dates
back to the early 1940s when the focus
was on freight transportation. In the late
1980s, the program included logistics and
three years ago evolved into an integrated
supply chain management program.
Employers have
influenced most pro-
grams to expand focus
from a t raditional
t ransportation and
even logistics per-
spective to a broader
supply chain one,
said Ted Stank, pro-
fessor of logistics and
supply chain management at the Univer-
sity of Tennessee. University education
is not and, in my opinion, should not be
vocational training on how to do one
job. Rather, it should focus on providing
bright, educated people schooled in basic
concepts and with skills in critical thinking,
problem-solving, and leadership who can
then hit the workforce and with the help
of programs provided by their companies
adapt their knowledge quickly to the spe-
cific requirements of a job and begin to be
productive employees in a short period of
time. I have seen this happen often with
my students.
Stank, who is in line to serve as the 2015
chair of CSCMP, explained as the supply
chain management field becomes more
complex, so does the amount of detail
universities must push through their four-
year degree programs.
Think that 30 years ago we only had
to teach our students transportation, and
we could go very deeply into that area, he
said. Then we added order-fulfillment,
warehousing, inventory, etc. Now we have
added manufacturing ops, procurement,
etc. We have limited time, so we have to
stretch this coverage pretty thin to get
breadth at the expense of depth.
University supply chain programs are
growing rapidly, but the capacity cannot
yet turn out enough graduates to meet
demand, said Heather Sheehan, vice
president of indirect sourcing and logistics
at Danaher Corp., and the 2014 chair of the
CSCMP board. I will say many universi-
ties are doing a great job expanding their
supply chain programs and producing very
bright, well-rounded graduates.
A key differentiator and benefit to
companies seeking future supply chain
managers is their structured offerings of
internships to undergraduates.
Most supply chain management under-
graduates at the University of Tennessee
(UT), for example, perform at least one
internship with either a manufacturer,
retailer or third-party logistics services
provider while pursuing their education.
The most successful companies invest
in students earlier, much like engineering
recruiting, doing their hiring basically
through internships and co-ops, Stank
said. Many firms who recruit at UT do
not hire new grads sight unseen; rather they
recruit juniors for internships and co-ops,
and then hire the best of these students for
their full-time needs.
According to CSCMPs research,
American businesses can do much more
to cultivate a steadier stream of qualified
supply chain managers earlier by providing
internships. They get an employee with
all the benefits from a university-prepared
student who has already been trained in
their specific needs and job requirements
and can really hit the ground running. It
takes more insight and investment, but
the ROI (return on investment) is huge,
Stank said.
University of Tennessee graduates about
350 students a year with degrees in supply
chain management. Thats up from about
250 in 2007. Upwards of 90 percent of
these graduates have jobs waiting for them
upon graduation. Stank said the starting
salary for many of these graduates is in the
mid-$50,000 range, often with a $2,500 to
Cultivating supply chain talent
CSCMP, universities work with companies
to prepare graduates for growing field.
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$5,000 start-up bonus to cover moving and
other related relocation expenses.
As the incoming CSCMP chair, Stank
plans to make supply chain talent devel-
opment a priority for the organization.
I believe that we have underutilized the
three-way partnership between educational
programs, industry, and professional orga-
nizations like CSCMP, he said.
In recent years, CSCMP has invested
heavily in programs, such as SCPro, de-
signed to complement university education
to help both companies and employees gain
more detailed supply chain knowledge that
they may not otherwise get from a degree
The educational development that has
accompanied the development of the SCPro
certification is really incredible, and I
will continue to push to find ways to use
these new CSCMP programs to work with
companies to create templates to help their
employees gain the specific knowledge
they need to increase their productivity and
overall performance, Stank said.
CSCMP has initiated a pilot program
in which it will work with a companys
supply chain group to map their learning
competency needs with available CSCMP
products and services to provide a tailored
blueprint for learning for each designated
job position, he said.
I have seen the direct benefits of SCPro
certification, local roundtable events
around the world, our annual conference,
and a wide range of standard and custom
solutions to develop talent thoughout the
entire lifecycle of supply chain career
progression, Sheehan said.
I encourage CSCMP members to take
full advantage of the offerings, and if you
have a need, ask CSCMP if they can help,
she added. You will be amazed at the
network of resources and members that
will help solve any supply chain problem.
College students pursuing the field of
supply chain management are also en-
couraged to attend the CSCMPs annual
conference, which will be held in San
Antonio, Texas, Sept. 21-24. This years
event is expected to attract more than
3,000 attendees from around the world,
according to Blasgen.
CSCMPs conferences are packed with
numerous concurrent sessions, which can
make them feel a bit overwhelming to first-
time attendees and difficult for returning
executives to figure out how to best plan
which sessions to attend.
Realizing this, Blasgen said CSCMP this
year has organized its tracks and education
sessions into six cornerstones of supply
chain management. They include talent and
career; economic forecasts, benchmarks,
and surveys; thought leadership and in-
novation; manufacturing, planning and
sourcing; transportation, distribution and
warehousing; and the customer.
These six cornerstones are designed
to quickly direct you to the conference
tracks and sessions that are most pertinent
to your area of responsibility, and they are
uniquely tailored to your and your teams
professional development, Blasgen wrote
in a recent issue of CSCMPs Supply Chain
Quarterly newsletter. To encourage more
participation and interaction among at-
tendees, each cornerstone track will feature
at least one session without a PowerPoint
In addition, he noted the streamlined
conference program will allow attendees
more time for networking between ses-
sions. Learning not just from speakers but
also from one another is an important part
of your overall educational experience,
Blasgen said.
For more details about CSCMPs upcom-
ing annual conference, access the organiza-
tions website at
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airy exports have increased rapidly
in the past two decades, growing
from $982 million in 1995 to $6.7
billion last year, according to the U.S. Dairy
Export Council (USDEC).
As population grows, as GDP grows, as
the middle class expands worldwide, they
start consuming more dairy products, said
Alan Levitt, vice president of communica-
tions for USDEC.
Traditional suppliers from Europe, New
Zealand and Australia have not been able
to keep up with the growth in demand, so
the United States has been able to step in
and fill some of that gap, he added.
The development of cold chains and
expansion of fast food around the world
has also led to more cheese consumption.
Dairy amounts to about 4 percent of
worldwide refrigerated cargo volume, but
Bill Duggan, head of North American
refrigerated services for Maersk Line,
said dairy is a standout, along with meat
during a presentation at the Agriculture
Transportation Coalitions annual confer-
ence this summer. He said statistics indicate
in 2013 the United States has become the
No. 1 cheese exporter in the world.
In 2000, milk powder here in the U.S.
was the most expensive; now it is the
cheapest in the world. Our export engine is
really growing and were all excited about
it, Duggan said.
Levitt said theres a growing aware-
ness of the nutritional benefits of dairy,
so populations that traditionally didnt
consume dairy now understand that it can
help in child cognitive development and
physical development. So you have a lot
more infants being fed dairy-based infant
formula from the very start and then they
grow into lifetime dairy consumers.
At the other end of the age spectrum,
dairy is used in nutritional supplements
for the elderly, because they can help stave
off conditions such as osteoporosis, or
sarcopenia, the loss of muscle mass that
sometimes accompanies aging.
Dairy trade has benefited from changes
in trade policy, Levitt said. He explained
the dairy industry has traditionally been
protected, but as countries have opened
their markets, trade has increased, with the
United States now well positioned to take
advantage of these opportunities.
Technology is another driver of dairy
export growth.
Say cheese
U.S. dairy export growth is something
for these shippers to smile about.
As population grows,
as GDP grows, as the
middle class expands
worldwide, they start
consuming more
dairy products.
Alan Levitt, vice president
of communications, U.S.
Dairy Export Council
We are always finding new ways to
split milk into its component parts the
technology to separate and fractionate pro-
teins that is always developing, he said.
Were the worlds largest single country
cows milk producer and the largest cheese
producer and milk powder producer, so our
supply is there and it has just been a matter
of getting our suppliers attuned to serving
the needs of the overseas market, and that
has been a process Levitt said.
The most heavily exported products last
year were milk powder at 593,897 metric
tons; whey, 544,487 metric tons; and lac-
tose, 341,747 metric tons. These are dry
products that can be shipped in regular dry
shipping containers.
Other products must move in refriger-
ated containers or trailers, such as cheese,
which weighed in at 316,558 metric tons,
and butter/milk fat in 2013.
Levitt said American cheese, mozzarella
and gouda cheese are the most exported
Gouda cheese is not especially popular
in the United States, he said, but is a big
export to Mexico, and a lot of American
cheese and mozzarella is used in fast food
or chain restaurants.
He said Mexico is the No. 1 market for
U.S. dairy products overall, while Canada
is a smaller market, both because of regu-
lations and Canada is a substantial dairy
exporter in its own right.
About 90 percent of fluid milk is sold
in Mexico and Canada, but Levitt said
the United States is beginning to ramp up
production of ultra-high temperature, or
UHT, milk, which is shelf stable. While
not popular in the United States, its quite
popular in Mexico and China, both large
U.S. markets.
China and Southeast Asia are good
markets for dairy products that are used as
ingredients, and he said China is a strong
market for all dairy products and is grow-
ing rapidly.
China was rocked by a major scandal over
infant formula and milk products adulter-
ated with melamine in 2008 and the country
has become a good market for shippers of
ingredients such as milk powder from the
United States, New Zealand and Europe.
Another fast-growing market for dairy
products is the Middle East and North
Africa, Levitt said. He emphasized those
markets for dairy products are anything but
homogenousin the Middle East, for ex-
ample, one country may import mostly milk
powder, while its neighbor will buy mostly
cheese, and another will purchase butter.
One might think the U.S. dominance
in the fast food industry would mean U.S.
dairy exporters have a leg up on overseas
suppliers, but Levitt said thats not the case.
He said companies may change the tex-
ture or mouth feel of products from market
to market for products such as pizza to fit
the preferences of customers. And he said
by giving the proper specifications to sup-
pliers, companies can source from Australia
instead of the United States, for example,
and get the type of product they want.
They do want consistent quality, but it
is more defined by the specs. Its not just
making what we would make in the U.S.,
he said.
Food companies are interested in sup-
ply chain diversity. They dont want to be
beholden to any one supplier, so they try
to keep things spread out a little bit just to
make sure if a drought hits New Zealand
they are not in as much trouble if they have
some other places they can buy from,
Levitt added.
Duggan noted a major challenge that
container carriers face when moving reefer
cargo is balancing equipment: 56 percent
of U.S. reefer exports move westbound on
the transpacific, while 18 percent of reefer
imports arrive on eastbound transpacific
ships. About 46 percent of U.S. reefer im-
ports originate in Central America and the
Caribbean, while only 13 percent of U.S.
reefer exports are headed in that direction.
Shippers may see a tightening supply of
refrigerated containers. Last year, London-
based industry consultancy Drewry said
there were 1.85 million TEUs of reefer
containers, with 450,000 owned or leased
by Maersk.
But with poor rates, Duggan said Maersk
made the decision not to build reefer boxes
in 2013 or this year, where it would normally
spend $500 million to order 40,000-45,000
units annually.
Overall, Maersk believes containerized
reefer demand will grow at an annual rate of
about 5.2 percent per year, but Duggan said
reefer rates have not kept up with inflation
or rising bunker prices.
While capacity on ships is being increased
for reefer containers, supply of the actual
reefer containers is lagging
Theres a bright future, however, for
increased movements of reefer cargo, es-
pecially to developing countries, for both
shippers and carriers, Duggan said, but he
added there needs to be a recognition both
types of businesses must make money
and he called for more long-term strategic
contracting in the industry (for example,
he recently concluded a 10-year deal with
one customer) and less transactional
In 2000, milk powder
here in the U.S. was
the most expensive;
now it is the cheapest
in the world. Our
export engine is really
growing and were all
excited about it.
Bill Duggan, head of North
American refrigerated
services, Maersk Line
ali is a popular honeymoon des-
tination. But for the World Trade
Organization, Bali represented a
watershed moment in the rebuilding of its
reputation as a global force for negotiated
trade between nations.
It was there, in December 2013, WTO
members agreed in principle on a trade
facilitation pact that some analysts estimate
would produce as much as $1 billion in
economic benefits annually.
Alas, the honeymoon is over.
In late July, India and a small number of
other WTO members effectively blocked the
progress made in Bali to lower bureaucratic
barriers to trade, refusing to sign the accord
unless changes to a parallel food subsidy
program for so-called least developed
countries were made.
The setback is symptomatic of the
struggles the WTO and trade advocates
have faced in recent years most notably
in the organizations failure to progress on
Doha Round negotiations.
Essentially, Bali represented a scaled-
back version of what was originally en-
visioned for Doha. The focus of the Bali
accord was on lowering tariffs enacted
by developed nations on exports from
developing nations. Many trade experts
were left scratching their heads at Indias
stance, given the nation stood to benefit
from enhanced trading conditions if the
deal was signed.
The agreement would have added $21
billion to Indias economy by 2020, accord-
ing to research cited by the U.S. Council for
International Business. The United States
and international donor organizations were
mobilizing to provide capacity-building
assistance to ensure less developed nations
had the resources to implement customs
On the whole, the agreement targeted
increased growth from small and midsized
enterprises those companies stymied by
expensive and time-consuming bureau-
cratic customs regimes.
The failure to ratify the deal in July saps
confidence in the WTO as a forum for
multilateral negotiations and undermines
the organizations credibility as a monitor
of international trade policies, the Peter-
son Institutes Jeffrey Schott and Gary
Hufbauer said.
Yet Indian trade officials insisted that
provisions in the agreement requiring it to
reduce subsidies to farmers were unreach-
able by the stipulated target date in 2017. Just
as importantly, India argued the formula
used to calculate the subsidies was based
on a formula using pricing from the 1980s.
India is insisting upon change in the
method of calculating the legally permis-
sible subsidy, V. Anantha Nageswaran,
founder of the Indian think tank Takshashila
Institution, wrote in a column in the Indian
business journal Live Mint in July. It can-
not be based on prices that prevailed in
1986-88. That India has a badly-designed
and ultimately counterproductive grain pro-
curement and distribution program today is
no reason to agree to the use of an outdated
benchmark price to calculate the nations
food subsidy. At a future date, even a well-
designed food security program might still
fail to comply with the treaty obligation if
the reference prices are not updated.
India has also argued the food subsidy
issue should be decoupled from the trade
facilitation agreement, a measure that other
WTO members say is untenable given the
volume of agriculture trade that could be
fostered by the agreement.
Indeed, the talk now has moved to another
type of decoupling altogether, according to
Jake Colvin of the National Foreign Trade
Council. In a briefing Aug. 1 in Washington,
Colvin conveyed the exasperation of WTO
members that had worked for years to forge
progress on trade facilitation. Those mem-
bers thought they had scaled a significant
hurdle in Bali, making the setback in July
all the more desperate.
This has left a sour taste in terms of
backsliding, the idea that we cant believe
were doing this again, he said.
On the table now is a plurilateral agree-
ment outside of the direct scope of the
WTO. For context, WTO rules dictate that
any agreement must pass unanimously. If
all members dont agree, then it does not
WTOs Bali honeymoon over
Indias refusal to sign trade facilitation agreement
perpetuates feeling trade body is broken.
Alabama State Port Authority
go into effect. The justification is simple:
it gives the smallest trading nations power
equivalent to those of the most powerful,
in much the same way the U.S. electoral
college gives small states more power
than a straightforward popular vote in the
presidential election.
However, that requirement means one or a
handful of nations can essentially filibuster
proposed agreements in perpetuity. What
has vexed those nations in favor of the Bali
accord, as it was agreed upon in December,
is not necessarily the particulars that India
is fighting. Rather, they worry the WTO
as an entity might be forever scarred by
throwing out all the work done on such
hard-fought progress.
Indeed, the discussion now is whether
the WTO is even a viable entity anymore.
Colvin said there is talk about whether the
best path forward is now to forge an agree-
ment that mirrors the provisions agreed in
Bali, only without India (and other nations
that refused to sign the accord, including
Cuba, Venezuela, and Bolivia).
If the other WTO members do move for-
ward with that plan, it would be negotiated
outside the auspices of the WTO. It would
also augment other major pan-regional trade
agreements currently underway, namely
the Trans-Pacific Partnership (TPP) and
the Transatlantic Trade and Investment
Partnership (TTIP). These agreements have
been developed as a direct consequence of
the Doha Round, making no discernable
India is asking the WTO membership
to press on with negotiations on the trade
facilitation agreement and food subsidy
agreement, but those members might not
be so conciliatory given India effectively
left them at the altar in July.
India recently elected a new prime minis-
ter, Narendra Modi, who built a reputation
as chief minister in his home state of Gujarat
as a progressive pro-business leader.
However, the global trade community
has been left befuddled by the first major
act after his electionleaving more than
a hundred other nations ready to sign the
trade facilitation agreement high and dry.
Political observers note the move is
primarily designed to help Modi make
inroads with Indias vast and mostly
poor rural population, which his Bharatiya
Janta Party (BJP) has struggled to lure in
the past.
That cynical view doesnt take into ac-
count the potentially legitimate gripes India
has with the food subsidy provisions of the
agreement. But, again, the real damage,
argue trade advocates, comes from the
11th-hour submarining of a long-negotiated
agreement, not any particular quibble with
the agreement itself. No side gets everything
they want in trade negotiations, goes the
off-cited mantra.
To now have this significant agreement
delayed due to the reservations of a small
number of WTO members means the major
gains in world trade, increased GDP and
more jobs will not be realized, Michael
Mullen, executive director of the Express
Association of America, said in a statement.
The EAA represents DHL, FedEx, UPS
and TNT.
Colvin said he suspects India likes being
under siege, in that it galvanizes support
within the country that its not being pushed
around by western nations.
Lobbying by U.S. businesses isnt going
to help much, he said.
There may be something to that suspi-
cion. India has been fiercely self-sufficient
since independence in 1947, and typically
prioritizes internal governmental policy
over measures that would stimulate trade.
To wit, the nation only recently allowed
foreign companies to hold a majority stake
in Indian retail ventures.
-Eric Kulisch contributed to this report.

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Turning quotes into profit
ve become a little fixated lately on the rate management
market, and probably for good reason.
Technological sophistication in rate management is
emblematic of a true change in how the
costs of transportation are secured, stored,
and used. Think back to the old model of
getting a rate.
It would involve calling around to the
carriers in the applicable mode, negotiat-
ing on price and service, and then moving
the shipment according to those terms.
Everything manual, everything handled
in a transactional, ad-hoc basis.
Rate management systems allow ship-
pers to segment those negotiations on price
and service from the act of using those rates,
and thats a good thing. It allows shippers
to see their buying patterns from a high
level (moving down to a level as granular
as they want). It allows them to have access
to the myriad rates they have negotiated
in seconds; the same way we have access
to plane tickets on Expedia or Travelocity
in seconds.
But lets focus a minute on what these
rate management systems mean to freight
forwarders and non-vessel-operating com-
mon carriers, since many of the tools out
there are aimed precisely at that market.
First, lets remember that forwarders
and NVOs play a customer service role in
the booking and moving of freight. They
take a margin based on their ability to act
as knowledgeable and customer-focused
middlemen. Having access to accurate, up-
to-date rates in a flash is often the difference
between winning or losing a customer.
But the tools that rate management
systems offer forwarders, NVOs, and even
third-party logistics services providers, go
beyond that power to quote quickly and ac-
curately. Being theirs is a margin business,
these service providers need an accurate
picture of what each rate means to their
bottom line. They need to know whether
it makes sense for their company to take a
piece of business.
And thats where the leaders in the rate
management space are taking things these
days providing easy-to-gather metrics
by customer, region, lane, and even down
Motsick, however, said customers say
the primary values of the tool are a branded
site and quoting speed.
Profit margin management and com-
munication is one of the factors, he said.
More importantly, providing a custom-
built site in the forwarders name and
offering an easy-to-use rate calculator site
is gaining traction. Agents and customers
love it because they dont need to wait for
an email one to two days later. Quoting
speed to the customer is becoming more
of a priority.
Whatever the motivations, it behooves
forwarders and NVOs particularly the
middle-market ones with aspirations of
growth and scale to ensure that their
ability to access, deliver and measure quotes
is up to snuff.
Weve written much about the need for
these non-asset-based companies to deliver
when it comes to service and technology,
and this is a perfect example. Rate manage-
ment is truly where service and technology
For shippers, its important to ensure their
forwarders and NVOs are using top-of-the-
line technology when it comes to delivering
rates, and developing relationships with
those middlemen who know the difference
between a good rate and a bad one is just
smart long-term business practice.
Yes, you may be able to squeeze below-
market transactional rates out of those
companies that dont have a crystal clear
view of profit margin down to the individual
quote level, but the ones that do know the
importance of technology are more likely to
be able to provide other critical IT-intensive
services and functions outside quotes.
The market has evolved from telephones
and rate shopping to one with automated
rate searches that provide line-item detail,
profit margin per-quote and systematic
analytics. Theres a lot of data out there,
but there also are systems to capture, sort,
and quickly turn it into actionable decision-
making material.
As a procurement expert relayed to me
in the past year, most shippers lie at the
less sophisticated end of this spectrum,
particularly those whose focus is wholly or
mostly on ocean freight procurement. Using
forwarders and NVOs that deploy the latest
in dynamic rate management tools can help
bridge that sophistication gap.
Shippers IT l By Eric Johnson
to the salesperson level.
In a conversation in August with Rishi
Parti, director at the rate management so-
lutions provider Info-X, he said one of the
modules NVO customers say is especially
useful is a tool that allows them to quickly
determine profit margin by salesperson
and customer for each quote that goes out.
NVOs can look at each quote for this
information, or they can look at weekly
or monthly reports based on their require-
ments. Its particularly important given
the way many NVOs partner with agents
in foreign markets. Having such scrutiny
on margin down to the individual quote
level lets them gain a measure of control
that they ordinarily would lack.
Technological sophistica-
tion in rate management
is emblematic of a true
change in how the costs of
transportation are secured,
stored, and used.
Info-Xs system also lets NVOs track
which customers are asking for quotes,
but not using any of those rates. As Parti
put it, delivering those quotes uses up an
NVOs resources, and if customers are
using up those resources with no revenue
coming back, the NVO needs to gain an
insight into that.
Matt Motsick, chief executive officer of
Catapult International, said his forwarder-
oriented tool, QMS Lite, addresses the same
types of metrics.
The reason why we built QMS Lite was
to provide forwarders their own Expedia
of their own international shipping rates,
Motsick said. The administrator can man-
age profit margins per lane, per region, per
username. They can also see their agents
quoting activity and those margins.
The ultimate global logistics challenge
few years ago the Organization for Economic Coop-
eration and Development (OECD) estimated the size
of the worlds middle class and forecast how it would
grow. (The OECDs middle class forecast,
along with the U.S. Census Bureaus world
population estimates, is shown in the
corresponding chart.) According to the
OECD study, published in 2010, the global
middle class should be 75 percent larger in
2020 compared to 2010 and by 2030 164
percent larger.
It is not clear from a logistics point
of view that it will be possible to nearly
double the number of people who have
a middle class standard of living. There
will certainly be a lot more freight moving
around the world, if these forecasts prove to
be correct. However, given the externalities
such as congestion resulting from meet-
ing the demands of the current size of the
global middle class, one has to wonder if
the OECD forecasts can be achieved. That
will depend primarily on the global freight
movement industry.
As the U.K. manufacturers association
EEF pointed out in a report released last
July, the growth of the global middle class
in the last 20 years has strained the capac-
ity of raw material-producing industries.
Europe has analyzed the issue of security
of supply in the last few decades as it has
become increasingly dependent on produc-
tion from politically unstable regions, such
as Eastern Europe, and concluded that it
needs to diversify its sources. During this
same period, metals, petroleum and agri-
cultural commodity prices have increased
600 percent.
Natural gas prices are currently 65 per-
cent higher in the United States compared
to late 1999, significantly underperforming
in terms of other commodities prices.
However, this is traceable to technologi-
cal improvements in extracting oil from
shale reserves. Until recently, natural gas
purchasing agreements indexed the price to
be paid to that of oil prices, which allowed
both parties to hedge price risk using oil
futures contracts that had high daily trading
volumes and were therefore very liquid.
Due to the increase in supply in the United
States, natural gas contracts are no longer
linked to oil prices. European and Asian
Strategic View
With Walter Kemmsies
consumers still have contracts linking
natural gas to oil prices, and therefore pay
more than U.S. consumers do. However,
as natural gas becomes a globally traded
commodity, likely driven by increased U.S.
exports, Asian and European consumers
should be able to disconnect the price they
pay from that of petroleum.
The issue for natural gas is freight move-
ment infrastructure, both on the export/
liquefaction side, as well as the import/
regasification end. This also applies to
other raw materials such as agriculture.
As discussed in this column a year ago,
the Mississippi River system needs signifi-
cant investment to overcome operational
issues identified in a report published in
2011 by the United Soybean Board. The
Mississippi has been losing share of U.S.
grain exports, but remains very impor-
tant for both international and domestic
freight movement. The United States,
however, is not alone in this regard. Brazil
is the largest supplier of soy to China, but
the cost of trucking this commodity from
the inland Cerrado region to ports in the
south of the country and the long voy-
age around Africa is expensive. It has
been reported in the press that if Brazil
develops inland waterway ports and
improves highways leading to the Ama-
zon River its costs could fall by about a
third. This would not bode well for U.S.
Larger bulk and container vessels can
lower costs, if ports are able to handle them.
Hence, dredging is required and inland
connectivity must be improved. Getting
this right would bring the OECD forecasts
one step closer to being realistic, which
would generate a healthy return on the
infrastructure investments. In the absence
of these investments, the global economic
outlook would be extremely grimlow
growth and inflation. Increasing the global
middle class from 1.8 billion to 4.9 billion
people is the ultimate global logistics chal-
lenge and the freight movement industry
needs all the help it can get.
Kemmsies is chief economist at Moffatt &
Nichol, an infrastructure engineering firm.
He can be reached at (212) 768-7454, or
email at
Source: OECD, U.S. Census Bureau
World Population and OECD Global
Middle Class Forecasts
2010 2015 2020 2025 2030




Middle Class World Population
The last mile. For me its the moment of truth. The nal sprint to the nish line. 5,280 feet that
separates success from failure. Because on any given day I could be carrying the fate of a
multi-billion dollar corporation. Or the future of a family-owned business. And Im not about
to be the weak link in anyones supply chain. Challenge accepted. I am / 1-800-HI-PILOT
I watched with fascination as a printer-
like device, (albeit a very large printer),
attached to a computer, slowly used a plastic
raw material to construct a small model of
a famous building. The degree of detail in
the finished object, complete with all the
architectural aspects of the original, was
I must confess to a failure of imagination
as I recognized that I was seeing something
that could potentially be a game changer
later, but failed to realize just how diverse
the applications could become.
Fast forward 12 years and almost all
conceivable objects, from guns to gui-
tars, and everything in between, are now
capable of being printed at home. 3D
Printers today are capable of architectural
construction (components for residential
construction), aerospace (NASA intends
to manufacture spare parts as needed in
space using 3D printing) and consumer
items of a large variety.
At its most basic level, this is what you
need to 3D print (or manufacture at home):
1. 3D model. This is the design for the
3D object that you are intending to produce.
The design or model can be obtained from
the use of a computer-aided design software
package, or through the use of a 3D scanner
to first scan an object into a model. The
number of smartphone apps that do this
is growing every day. The data from the
model describes the object which can then
be reproduced by a 3D printer.
Increasingly, several 3D exchanges
(Shapeways, Thingiverse and others) have
emerged in recent years to make it easier
for the average consumer to purchase a
basic design and then customize to suit.
2. 3D Printer. The design referred
to above results in a special type of com-
puter file that essentially means that the
3D image of the object gets sliced into
basic premise of 3D printing is validated.
As 3D printers get more ubiquitous
and business models like Shapeways, (the
bureau providing high-end, one-time 3D
printing) develop further, it is obvious
that the trend towards more 3D printing
adoption will continue.
Unique applications like dentistry and
tissue generation in the medical field are
made for the 3D world, as the products are
infinitely unique fitting one and only
one person.
It is likely that the use of 3D printing
in the near future will be confined to
prototyping, specialized applications and
highly customized manufacturing. The
most explosive growth in the near future
is likely to be in the online marketplaces
for designs.
However, this technology is potentially
disruptive to the logistics sector. Every sup-
ply chain best practice points to the need to
keep inventory levels low. As 3D printing
develops and becomes available closer to
more consumers, it is the best enabler of a
zero-inventory model, dramatically alter-
ing supply chains, disrupting the need for
warehouses and potentially removing the
need for transportation of some freight.
It is almost inevitable that there will
be a growing disruptive trend from this
technology over the coming decades.
While it is foolhardy to predict the how
and when any technology disruption
will occur (witness the delay in wide
adoption of RFID), it would be unwise to
not keep a very careful eye on this tech-
nology trend.
It does not take a very big leap to imagine
a day when most products are available
through an online retailer like Amazon,
infinitely customizable, designed on the
fly by the consumer and ordered online
during a lunch break to be picked up on
the way home from a 3D printing service
located at the nearby gas station or in a
franchised store. What is hard to predict
is when that model might emerge.
Kewalram has spent decades developing
freight forwarder and NVO information
technology, and now provides systems
consulting and training to logistics services
providers. He can be reached by email at
Executive IT Corner l By Biju Kewalram
thin layers. This is the design that the 3D
printer interprets in laying down material
until a finished object is produced. The raw
material required for this is obtained from
special distribution sources and inserted
into the 3D printer at the time of printing.
The precision of the technology means
that highly complex and precise shapes
can be produced.
This is where the biggest technological
advances have occurred as in all things
technological, 3D printers have gotten
smaller, faster and cheaper. There are
now printers that manufacture printers.
Companies dedicated to the supply of 3D
printers have gone mainstream and even
public. Companies like 3D Systems and
Stratasys did incredibly well last year as
the investing public saw the value in the
future of this technology. Companies like
Shapeways have set up bureaus so that
the public can send in their designs and
have their product manufactured and sent
to them.
Mainstream office supply stores like
Staples and Office Depot carry 3D printers
from below $1,000 to $3,000, consider-
ably more affordable than even five years
So, heres the relevant question. Will
this completely change manufacturing and
supply chains? The answer is yes and no.
While traditional, factory-based manu-
facturing carries a far lower per unit cost
of production, the factory model operates
on the basis of large quantities of the same
product with little variation. 3D printing
on the other hand offers faster production
(within a few hours) of small runs and
single item runs.
There is a growing trend towards compa-
nies, even in the traditional manufacturing
space, mastering mass customization (the
production of small run or even one-time
product manufacture). As markets evolve
towards this mass customization model, the
What does 3D printing mean to logistics?
saw my first 3D Printer in action nearly 12 years ago.
The basics of the technology (called additive manufactur-
ing) have been around since the 1980s.
8uslness laclllues 1op Loglsucs Leader
ln Lhe 2013 MeLro 8anklngs 8eporL.
No. 1 in Logistics
What does the Port of New Orleans mean to you?
>> Your Logistics Hub, providing ocean freight to businesses large and
small via 14,500-mile inland waterway, 6 class I railroads and the interstate
highway system.
>> Your Gateway to World Markets, leading the way as the premier port
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First Sale in crosshairs
he First Sale rule has never been popular with U.S. Cus-
toms and Border Protection and is under assault again.
In July, the agency proposed amendments to its
internal compliance publication, which
guides enforcement personnel on how
to do their jobs, essentially forcing im-
porters to keep extra documentation to
verify their claim of first sale privileges
and substantially increasing their record-
keeping burden.
The rule allows a company to base the
value of an imported finished good, for
purposes of determining the duty rate, on
the cost of the product at the first sale in
the supply chain rather than the value at
the point of importation.
It is common for importers, especially
in the textiles and footwear industries, to
set up first sale programs because they
often buy merchandise from middlemen.
First sale allows them to pay duty on the
price the middleman paid the factory for
the goods rather than the price the importer
paid the middleman.
In the apparel and footwear industries
duty rates reach 18 percent or higher and
companies want to avoid paying duty on the
middlemans overhead and profits, which
can result in substantial savings. Importers
usually exert great care to make sure all
the required elements of value, such as raw
materials, labor and intellectual property,
are included in the first sale price.
When Customs audits a transaction
it wants to see the records to make sure
there have been no additional payments
or assists something of value provided
to the vendor such as tooling, packaging
or parts that would bring down a factorys
production costs that should be added
to the first sale price.
Increasingly, CBP import specialists
have been attempting to gain access to the
books and records of the foreign middleman
and suppliers to confirm the transactions
are legitimate.
International traders are very sensitive
about CBPs intentions since the agency
tried to eliminate first sale at least twice
last decade. But the courts over a quarter
ciples, as if they were auditing a U.S.-based
In its official comment to Customs, the
American Apparel & Footwear Associa-
tion said questions raised by a handful of
audits do not justify a change in practice
for an entire industry. Most verification
problems could be fixed with better training
of auditors as to how and when to request
specific documents, and there should not
be a pre-determined checklist of docu-
ments required because companies will feel
compelled to obtain all the documents and
have them at the outset, it said.
Some of the documents identified
are most likely unavailable to the major-
ity of companies engaged in First Sale
transactions and others are not necessary
to substantiate a First Sale claim. Fac-
tory books and records, for example, are
likely not available to the unrelated U.S.
importer and are currently not used in First
Sale validations because they have little
relevance to verify the first sale transac-
tion that cannot be attained by other less
intrusive documents.
The cost to add, generate, and store
additional paperwork, even if those
documents are never requested, cannot
be underestimated. This cost magnifies if
these documents begin to form the basis
of other examinations or routine inquiries
beyond audits. Such costs are especially
painful given the fragile state of our eco-
nomic recovery and would undermine the
competitiveness of U.S. firms, the trade
association said.
What really doesnt make sense is that
Customs has made great strides the past
four years to reduce regulatory barriers
to trade and simplify customs procedures
in an effort to facilitate economic growth.
The agency has placed great emphasis on
industry partnership programs. It is con-
sidering merging Customs-Trade Partner-
ship Against Terrorism and the Importer
Self-Assessment programs and recently
established the Centers for Excellence and
Expertise to help streamline post-entry
processes. As the AAFA noted, it goes
against the principle of partnership and
account-based treatment.
Travis and others said they are hopeful
CBP will take industrys objections seri-
ously and withdraw the proposal.
century have upheld the legality of first
sale and Congress in 2008 passed legisla-
tion instructing CBP to preserve the rule.
Agency officials insist they are not mak-
ing any policy changes, simply clarifying
what documents field officers should
Importers and their trade associations
have reacted vigorously, complaining CBP
is trying to make it so difficult to use first
sale that some will give up.
Comments were due Aug. 4, but some
say the changes are significant enough that
the agency should go through a rulemak-
ing process because with the informal way
there is no economic impact study or the
same level of transparency.
Tom Travis, managing partner of
Sandler, Travis & Rosenberg, and chief
executive officer of the law firms trade
advisory services unit, told me the scope of
the document request such as accounts,
general ledgers, and tax returns from
business partners in foreign countries is
extremely difficult to comply with for an
Besides, he added, an importer can get
most of the documents when requested and
most are able to validate their transactions.
The problem is that no self-respecting for-
eign company is going to open its books
to a U.S. importer and potentially open
itself up to antitrust and confidentiality
concerns by provide sensitive information
to multiple customers who are competitors.
Foreign laws, in some cases, prevent such
CBPs proposal is a solution in search
of a problem. Its an overreach of record
keeping and sets a new standard for reason-
able care thats artificial and impossible to
meet, Travis said.
Essentially, Customs is trying to gain
access to detailed records which are not
controlled by the importer, and not nec-
essarily prepared in English or according
to Generally Accepted Accounting Prin-
Brokers, Forwarders & NVOs l By Eric Kulisch
Ma t s o n
F a s t . C o n v e n i e n t . R e l i a b l e .
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Matson offers more sailings, more efficient ships, and more experience transporting the necessities of life to and from
Hawaii than any other shipping company. And we extend the same, extraordinary level of service to China as well as the
islands of Guam and Micronesia. Of course, no matter what your destination, our knowledgeable and efficient customer
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after 130 years of service to Hawaii, our dedication to the islands is stronger than ever.
need that arose after the downing of Ma-
laysia Airlines flight MH 17 in eastern
Ukraine on July 17.
In addition to its own experts, ICAO
brought together leaders from other top
aviation organizations, such as the Interna-
tional Air Transport Association, Airports
Council International and Civil Air Naviga-
tion Services Organization, to review events
leading to the passenger planes demise.
The downing of MH 17, in addition to
the loss of Malaysia Airlines MH 370 in
March, has spurred international aviation
bodies to look into improving the worldwide
landscape for airlines. In response to the loss
of MH 370, ICAO called for an immediate
improvement in flight tracking capabilities.
The parties said the MH 17 task force
will study conflict data sharing among
stakeholders, the production of anti-aircraft
weapons, and implementation of a secure
information channel to share information
when other methods fail.
While aviation is the safest form of
transport, the MH 17 incident has raised
troubling concerns with respect to civil-
ian aircraft operating to, from and over
conflict zones, the organizations said in
a statement.
We recognize the essential need for
information and intelligence that might
affect the safety of our passengers and
crew, they continued. This is a highly
complex and politically sensitive area of
international coordination, involving not
only civil aviation regulations and proce-
dures but also state national security and
intelligence gathering activities.
During a news conference, IATA Direc-
tor General and Chief Executive Officer
Tony Tyler characterized the downing of
MH 17 as an attack on the entire industry.
Civil aircraft are instruments of peace.
They should not be the target of weapons of
war. That is enshrined in international law
through the Chicago Convention, he said.
In calling for better communication about
conflict aviation the best routes, and at
Analysts at RHB recommended the airline
could start by thinning its employees by 19
percent and capacity by 10 percent. A cut
to Malaysias workforce is likely a starting
point for Khazanah Nasional Berhad.
We reiterate that the proposed restruc-
turing will critically require all parties to
work closely together to undertake what
will be a complete overhaul of the national
carrier on all relevant aspects of, inter alia,
the airlines operations, business model,
finances, human capital and regulatory
environment, the investment entity said in
a statement. Nothing less will be required
in order to revive our national airline to
be profitable as a commercial entity and
to serve its function as a critical national
development entity.
Malaysia Airlines experienced a RM443
million loss ($138 million) during the first
quarter. Airline officials said traffic had
been rising and the airline had cut costs,
but these programs were overshadowed
by pressure on yields, under-performing
non-core activities and negative sentiment
on the airline.
The airlines cargo subsidiary, MAS-
Kargo, has also undergone some recent
cost-cutting changes. The cargo team re-
organized in July to streamline its daily
operations, according to a note from Ahmad
Luqman Azmi, MASKargos senior vice
president of global sales and government
affairs. At the time, officials introduced
two new departments, Cargo Corporate
Services and Cargo Strategic Management.
So far this year, MASKargo has seen its
overall activity decline as bellyhold capacity
has increased. During the second quarter,
freighter activity fell 11 percent year-over-
year, despite officials reducing capacity 5
percent. The cargo arm experienced an
overall year-over-year volume decline of 3.7
percent during the second quarter; capacity
rose 3.6 percent during the same period.
Cargo load factor declined 5.1 points. Belly
cargo activity rose 0.7 percent during the
period, but capacity increased 9.1 percent.
These second-quarter belly numbers are
somewhat of a reversal from those seen in
the first quarter, when the carrier measured a
14.2 percent increase in volume, as capacity
increased 15 percent. Freighters saw much
of the same, though; volume dropped 24.1
percent, and capacity was reduced 21.6
percent during the first quarter.
Air Integrators l By Jon Ross
what altitude planes should fly Tyler
said airlines have been told flying over
Ukranian airspace at a height of more than
32,000 feet would keep them above missile
range. The Malaysia plane, which was shot
down by an anti-aircraft missile capable of
reaching more than 32,000 feet, was flying
at the accepted height.
It is essential that airlines receive clear
guidance regarding threats to their passen-
gers, crew and aircraft. Such information
must be accessible in an authoritative, ac-
curate, consistent and unequivocal way,
Tyler said. Even sensitive information can
be sanitized and still remain operationally
Tyler went on to note theres a gap in
the international law regarding war-time
weaponry. Governments address the use of
nuclear, chemical and biological weapons,
but there are entire subsets of weapons
used in conflicts that are not subject to
international conventions.
MH 17 shows us that this is a gap in the
international system which must be closed.
Under ICAOs leadership, I am confident
that we can find ways within the UN system
to augment the international law framework
to ensure that states fully understand and
discharge their responsibilities in this re-
gard, he said.
While these disastrous events will cre-
ate new international laws regarding civil
aviation, Malaysia Airlines is struggling
to survive from under the weight of two
large crashes.
Khazanah Nasional Berhad, the invest-
ment arm of the Malaysian government
and the majority stakeholder in Malaysia
Airlines, has issued a proposal to buy all of
the airlines outstanding shares and remove
it from public trading in a move worth a
reported $430 million. The government
body was to issue a full restructuring plan
for the airline by the end of August.
After the disappearance of MH 370 in
March, airline industry watchers said Ma-
laysia needed a big change to right the ship.
Avoiding disaster
n mid-August, the International Civil Aviation Organiza-
tion convened the first meeting of the special task force
authorized to study aviation safety in conflict zones, a
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ince its inception, the Shanghai Containerized
Freight Index has given ocean freight shippers an
accurate portrayal of spot export container rates
out of Shanghai on a variety of lanes.
Populated by liner companies and freight forwarders, the
data generated by the index is invaluable for judging the
health of the container market. Shippers and analysts may
use the data to see where trends are heading, but brokers and
others see the data as the base for container
freight swap agreements, which allow for
hedging against the sea freight market. The
index has become much more than a tool
for transparent pricing, and has created a
derivative market out of shipping contain-
ers, bringing about the commoditization of
the shipping container.
John Peyton Burnett, managing director
at Hong Kong-based Kong Team Logistics
Ltd., and Robert Frei of JCL Logistics hope
to eventually create a similar type of multi-
user index for air cargo.
This fall, the two logistics executives
will launch the first weekly air cargo
pricing index, dubbed the TAC Index,
concentrating on key air cargo lanes out
of Hong Kong. The index wouldnt be a
sea change for the air cargo industry, but
it would allow shippers to benchmark rates
on certain lanes, and eventually open the
market to commodity trading.
Built upon house and master air waybill
information provided by forwarders, the
index would present a picture to shippers of
what they should be paying for air transport
services on any given lane. Burnett said the
participating forwarders are drawn to the
fact that the index is setting up a derivatives
market for air cargo.
Generally speaking, the basic model
for how air cargo is traded really hasnt
changed in the last 50 years, Burnett
said. What were essentially trying to do
is to bring air cargo in line with the other
commodity markets.
As with the ocean index, Burnett sees two
types of users for the subscription-based
TAC Index consumers like airlines, ship-
pers and forwarders, and financial players
looking to trade a new type of commodity
or analysts tracking the marketplace. One
of the criticisms of the index is that its
pushing all trading toward the spot market.
Burnett said this is only half the picture.
Airlines would prefer long-term con-
tracts for their air freight, but will benefit
from the index because they can syntheti-
cally sell cargo space on their planes years
down the road by using the data in the
index, Burnett said. This, he added, will
make investors happy, and will provide a
clearer picture regarding future activity,
a big advantage when signing up for new
aircraft. Buying new planes has always
been a gamble based on projections for the
future made by Boeing and Airbus and this
will take some of that uncertainty out of
the equation, he said.
Data is now rolling in from forwarders,
and the task is now sorting through what
they have to get the index up and running.
Burnett and Frei had been striving to create
the index, something they said the air cargo
industry has needed for a while, for the past
10 to 15 years, but information technology
capabilities always made a comprehensive
index practically impossible. Now, armed
with enough data which, in some cases,
is two to three years of archival informa-
tion, depending on the technological
inclination of the forwarder Burnett
will start the index focusing on city pairs
out of Hong Kong. He said the index will
likely show rates between Hong Kong and
major U.S. airports like John F. Kennedy
International Airport in New York, Los
Angeles International Airport and Chicago
OHare International Airport. Other first
pairings will likely show pricing between
Hong Kong and Amsterdam, Frankfurt
and other major air cargo cities.
air freight
Two logistics executives set to launch
a weekly rate index for air transport.
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Effectively, the top 50 city pairings
represent 50 percent of the market by rev-
enue. What we would be doing is focusing
on those trade lanes; thats what were most
interested in, he said. Initially, because
we are getting our data out of Hong Kong,
we would be focusing on the main city
pairings out of there.
While Burnett has a rough date in mind
for launching the index, he said it all
depends on how much data they receive.
Weve still got to do some more analysis
on the data. Were not going to go unless
its correct, he said. If we had a few more
providers coming online, we might wait a
little bit. Burnett noted that recent press
attention has garnered increased interest
in the index, which in turn has helped
bring more consumers and data providers
to the table.
He continued, Weve had some of the
big shippers call us up and say, You get
going, and as long as the data are good,
were supporters of this.
In addition to being a benchmark tool,
shippers will benefit from the index, Bur-
nett said, by being able to see air cargo as an
insurance product. He explained shippers
might be able to pay a premium toward
insuring that freight rates dont climb
above a certain barrier. As an example, a
shipper would pay a fee to ensure that pric-
ing doesnt rise above $3.50 per kilogram.
If pricing stays at or below that level, the
shipper loses the fee, but if pricing suddenly
soars, that tiny fee would save the shipper
from an unanticipated expense.
The immediate benefit for the shipper
will be when negotiating price, as they will
have a benchmark to work from, like they
do in the other commodity markets, he
said. The indexation of the sea container
market, which is a few years ahead of us,
is now really starting to take hold.
Finally, shippers will benefit from the
index by cutting down on the tedious task
of price discovery. To do this, forwarders
will submit multiple bids on a regular basis
for a large shipper to measure the going rate
for air cargo shipments across a number of
providers. The index has the potential to
get rid of this step of the bidding process.
An index can make the market more
efficient by removing this price discovery
component, Burnett said. Parties can then
focus their efforts on other issues such as
service. For example, some parties might
be willing to procure capacity at a higher
than market price, but they expect a better
level of service.
The TAC Index wont be entering a
completely open market. Since 2004, Dre-
wry has published WorldACD, a monthly
service that provides volume, revenue, yield
and product type data on trade lanes. The
data can also be analyzed on a macro-level,
taking a measure of an entire region or
country. According to World ACD, it gets
these data sets by recording 2 million air
waybills each month, generating shipment
data from more than 15,000 forwarders and
over 50 airlines. Drewry also publishes a
monthly air freight index, measuring the
average price of a kilogram of freight paid
by forwarders on key East-West trading
Recently, Drewry announced that it
had strengthened its cooperation with the
forwarder network WACO System. The
two entities have collaborated since 2012,
as WACO has provided data for Drewrys
monthly reports, and Drewry has helped
the networks forwarder members unearth
market trends.
Joost van Doesburg, who has served
as the air freight policy manager at the
European Shippers Council since 2011,
said the main reason his group supports
the index is that it will bring a measure
of accountability and transparency to air
cargo pricing. As more capacity comes
into the market, he said the spot market
will become even more important than
it is today, and the index will help ship-
pers navigate that market effectively and
Many shippers see this industry as a
commodity, but we are lacking such an
index, he said. I really hold the belief from
my shippers role that this will become a
reliable index.
One of van Doesburgs main crusades
is accountability regarding surcharges
levied by carriers to cover security and
fuel expenses. With the fuel surcharge, he
said, shippers have never seen an accurate
correlation between the price of jet fuel and
the amount of the surcharges. When fuel
goes up, so do the surcharges, but when
fuel gets cheaper, these surcharges dont
always immediately follow the flow of the
market. By allowing shippers to compare
indexed pricing with surcharges levied by
carriers, this index will bring a contentious
practice more into the open, he said.
Shippers still believe, and we have all
the proof necessary, that, indeed, logistics
service providers use the surcharges to re-
duce their debts or to increase their yields,
he said. We think that surcharges should
not be created for that purpose.
Van Doesburg said he believes theres a
fundamental flaw in the air cargo industry
and, while the TAC Index has certainly
been welcomed by shippers as a step toward
creating a transparent and healthier air
cargo industry, the index is not a panacea.
Shippers, he said, should be focused on the
price of air cargo, but this is not their only
concern. Reliability of air freight services
and the quality of transportation are very
important factors in the market that need
to somehow be quantified.
A measure of quality regarding air cargo
transportation would help stem the tide
of shippers leaving for cheaper modes.
He noted shippers either leave air cargo
for ocean transport, which is, of course,
slower but cheaper, or integrator services,
which are fast and reliable with high service
quality, but are expensive.
You dont know as a shipper whats
a good airline. You dont know what is a
good freight forwarder. You only know one
thing, what is a good price for this service,
he said, referring to the structural crisis
in the market.
Shippers, he said, will embrace the
new index because theres no down side
for them.
In the eyes of a shipper, there is no threat,
no reason to not take this action, he said.
For many shippers, they will embrace it,
and they will start to use it, and they will
start to monitor in a very easy way the price
To encourage these shippers to return,
carriers and forwarders need to invest in
new systems that bring the correct measure
of quality to the air cargo industry. This
would require the establishment of quality
and reliability metrics, but van Doesburg
said this would help prop up an industry
that has been using the same methods for
decades. He noted shippers are also de-
ciding to leave the industry, or not rely as
heavily on air cargo because they believe
things will never change.
Shippers can pay a little bit extra to
invest in more reliable and higher qual-
ity services that are, of course, a little bit
more expensive. So quality and reliability
should become an extra dimension in our
industry, he said.
This is outside the initial scope of the
TAC Index, which hopes to mature into
something akin to its much older ocean
brother, the Shanghai Containerized
Freight Index. For now, though, the in-
dustry seems abuzz with anticipation for a
legitimate new development in the volatile,
unpredictable air cargo market. Burnett is
happy starting from ground zero, striving
to make a difference.
You need to go into an unstable market.
If the market was flat, then theres no point
in setting up a derivative instrument, he
said. The bulk sea freight guys are 30 years
ahead and using more advanced financial
instruments to fine tune risk with us, at
the beginning, it would be quite basic, and
well build from there.
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Marine highway for chemicals
new company, Minyan Marine, believes it has a winning
formula for building a successful marine highway
While coastal shipping of containers or
truck trailers are common in many parts of
the world, they have had limited success
in the United States.
In August, the Port of Stockton said a
weekly service between its terminal and
the Port of Oakland would now be offered
only on an as needed basis. While the
port was having discussions with container
giant Mediterranean Shipping Co. about
taking over the operation, if a deal was
not reached by the end of August, it was
likely Stockton would issue a request for
proposals to see if any other private entity
would be interested in assuming opera-
tional control of the barge service, said
Mark Tollini, senior deputy port director.
Columbia Coastal, Kirby Corp.s Osprey
Line and the 64 Express all move contain-
ers on barge, but other marine highway
services have had trouble sustaining them-
selves for example, in 2010, American
Feeder Lines folded a service between
Boston, Portland, and Halifax, and the
following year, SeaBridge ended a service
between Port Manatee and Brownsville,
used in the coastal petroleum barge in-
dustry and have sea-keeping and speed
advantages over towed barges.
Compared to self-propelled ships they
have attractive capital cost and smaller
crews. Davis said he is planning to crew
the ships with 10 people reflected in
the word minyan, the quorum of 10 men
required for some Jewish services. (He
adds that female crew members would be
The company would concentrate on
moving tank containers holding chemicals,
including hazardous materials such as
anhydrous ammonia and chlorine.
He sees a major opportunity in the abil-
ity to convert the movement of chemicals
moving by intermodal rail to the marine
highway, adding there are many chemicals
that railroads do not want to move in tank
Davis said he is not relying on a build
it, and they will come philosophy, but is
lining up shippers and intermodal mar-
keting companies in advance of building
a vessel.
Many chemical shippers have their own
ISO tank containers already, and he noted
that even if theres not a backhaul cargo,
because of the high cost of tank contain-
ers, shippers understand the need to pay
for the repositioning equipment to its point
of origination.
Davis said Minyan would consider mov-
ing other cargoes besides chemicals, if it
could be priced properly. And he sees big
opportunity in possibly moving liquefied
natural gas or other products being pro-
duced through fracking.
Thats the kicker in this deal, he said.
Most of the fuel for the tug would be
stored on the barge, and while the com-
pany is keeping an open mind on what
type of fuel to use, Minyan is considering
use of alternative fuels, such as LNG and
The tug-barge unit could operate at
speeds of up 15 knots and cargo could
make it from port to port in five days, or
door to door in seven days. Davis plan is
eventually to use multiple barges (three
tugs, five barges would be optimal, he
said), so one could be in port loading and
another discharging, while the others are
in motion.
Ocean Transport l By Chris Dupin
Scott Davis, founder of Minyan Marine,
wants to start a Jones Act service using
an articulated tug barge (ATB) that would
operate between the
Gulf of Mexico and
the Northeast.
A retired execu-
tive from J.P. Morgan
Chase in the real
estate area, not ship-
ping Davis is slated
to speak about his
project, several years
in development, at the Marine Logs All
About Marine conference this month in
Biloxi, Miss.
Davis has plans to use an ATB designed
by Robert Hill of Ocean Tug & Barge
Engineering in Milford, Mass.
The barge that the company is consid-
ering building would have the ability to
carry 1,056 containers. Cell guides would
secure the containers and also eliminate
the need for time-consuming and costly
ATBs, where the tug is married to the
barge with a locking system, are widely
An artist rendering of Minyan Marines oceangoing barge to transport
tank containers.




Were Going Deeper. See how.
In two years, the Port of Charleston increased its rail volume 50%. Combining daily intermodal rail
service with a RapidRail dray system means a faster, more cost-competitive connection between ship
and rail hubs across the Southeast, Gulf and Midwest. Couple this with the regions deepest channels,
and you now have the smartest and most efcient way to reach markets around Memphis, Atlanta,
Birmingham, Nashville, Charlotte, Louisville, Huntsville, the new Inland Port in Greer, SC, and beyond.
hile there are some signs that the economy is
improving in the United States and Europe, the
container industry seems likely to continue fac-
ing challenges in coming years because of surplus capacity
and looming requirements to use cleaner fuel.
Hong Kong-based OOCL said in the first half of this year
it saw robust growth in cargo demand in the major European
and American markets.
ing continued deliveries of large vessels,
remained elusive and rates on the trade to
South Americas east coast have dropped
with an economic slowdown.
Ron Widdows, a member of the advisory
board of Rickmers Holdings, said during
an address at Marine Moneys conference
in New York in June that growth in con-
tainer volumes has slowed and volatility
has grown.
The industry is beginning to see the ef-
fect of cascading of ships from East-West
trade routes into other markets and Wid-
dows said that trend will continue.
As ships cascaded into Latin America
trades, rates collapsed and in the buoyant
intra-Asia trade is being visited by people
and assets that were not there before, he
Dirk Visser of Dynamar expects an
improvement in the container shipping
business in 2015 and 2016 with demand
outstripping supply. He projects a supply
increase next year of 3.7 percent, but an
increase in demand of 6.5 percent. In 2016
Liner carriers are under enormous
pressure to confront overcapacity
and cleaner fuel requirements.
Moving into 2014, there has been cargo
volume increase and a generally more posi-
tive sentiment than last year, noted C.C.
Tung, chairman of OOCLs parent company,
Orient Overseas (International) Ltd., in a
statement. In total, it is expected that the
container transportation industry posted
improved results for the first half of 2014.
Tung warned, however, that improve-
ment in the container business may be
capped given the large newbuilding or-
derbook and the anticipated next round of
newbuildings that will likely materialize
over the next twelve months.
Japans MOL said while container trade
in the transpacific and Asia-Europe trades
has been stable, a recovery in freight rates,
which have slumped due to factors includ-
Terminal channel improvements underway
Increase operating depth from 40 feet to 45 feet at two container terminals
Widen or realign channels by up to 100 feet
Projected completions: Barbours Cut Terminal - December 2014
Bayport Container Terminal - June 2015
Port of Houston Authority
DredgingfortheFuture | 713.670.2400
he forecasts demand to grow 6 percent
compared with supply growth of 3 percent.
Paul Bingham, an economist with CDM
Smith, said expectations of economic
growth have been tempered since the be-
ginning of this year, in part because of
geopolitical events such as the wars in the
Ukraine and Iraq.
Even without new orders, Bingham said
it will be hard for volumes to keep pace
with the built-in momentum already
in place because of existing orders for
This years list of the 20 largest liner car-
riers contains the same shipping companies
as last year, though some companies may
have moved up or down in size ranking by
one to three notches.
Are those changes in ranking important?
Time will tell. Carriers that look expan-
sionary may sell ships or take vessels off
charter, especially if the market weakens.
Ships are so large these days that adding
a single string of vessels may propel a
carriers fleet size ahead of several com-
Carriers do not order ships in sync and
especially today with many carriers under
financial stress, they may be conserving
capital, or waiting for more favorable prices
at shipyards.
Beyond the plans by Hapag-Lloyd to ac-
quire CSAVs liner business and Hamburg
Sd seeking to do the same with CCNI, it
seems unlikely any of the major container
carriers are going to merge or go out of
Those deals suggest container indus-
try merger and acquisition activity will
be restricted to piecemeal add-ons of
regional specialists rather than anything
more substantial, said Drewry in an issue
of its Container Insight Weekly newsletter
last month. Both CSAV and CCNI are based
in Valparaiso, Chile.
Widdows said while consolidation is
needed in the industry, getting there will
take some time and may travel a tortured
path. He noted most of the major shipping
companies are controlled by families,
governments, and big conglomerates. For
consolidation to occur, they must be con-
vinced that combining with another carrier
will be beneficial.
Continued Growth. Alphaliner stated
the capacity of the container fleet grew
5.7 percent to 17.3 million TEUs at the
end of 2013.
With 17.8 million TEUs of capacity on
4,985 ships as of July 1 this year, Alphaliner
forecasts the fleet will grow to 18.2 million
TEUs by years end, or 5.6 percent growth
in 2014. Next year it forecasts 8 percent
growth, so the fleet will be 19.7 million
TEUs by the end of 2015.
There is no real change in the supply-
demand balance in 2014 compared to
last year, said H.J. Tan, a principal at
Alphaliner. There are still too many ships
and the over-supply outlook remains in
He believes ordering will remain fo-
cused on the larger ships. The outlook for
smaller sizes remain clouded by the impact
of cascading.
Dynamars Visser expects ordering to
focus on broadly three different sizes: the
so-called wide-body 9,000-TEU units;
ships of around 14,000 TEUs, adapted
in such that they will fit through the new
Panama Canal; and 18,000-TEU units, of
which the ordering may resume when the
Far East-Europe route clearly recovers.
As of July 1, Alphaliner said there were
489 ships with 3.6 million TEUs of capacity
on orderwith 41 percent of that on ships
with capacity of more than 13,300 TEUs,
11 percent on ships with capacity between
10,000 TEUs and 13,300 TEUs, and 28
percent on ships with capacity from 7,500
TEUs to 9,999 TEUs.
The Port of Tacoma offers you a broad choice
of carriers, effcient transload capabilities,
state-of-the-art facilities and plenty of
room for growth. And our dedication to
meeting your business needs means you
have a trustworthy partner today, tomorrow
and into the future.
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Larry Kvidera
Commercial Group
You need a global trade partner you
can trust as much as your friends.
Sue Coffey
Sr. Business Development Manager
Commercial Group
Andy Tatara
Director, Asia
Commercial Group
There are going to be a lot of ships
required by this industry, Widdows said.
Over the next five years, 10 years, an
enormous number of ships.
That has to do with better efficiency,
better fuel economy. There are some events
coming on down the road a little ways in
terms of fuel standards that are going to
drive the need for a lot of ships, he added.
Gerry Wang, chief executive officer of
the containership charterer Seaspan, noted
in a recent call with analysts that bunker
costs about 30 percent to 45 percent of an
operators operating costs, so chartering
a new eco-class vessels is imperative to
bringing down those costs in line with
improving profitability.
He predicted in the second half of this
year we will see firm demand for larger
vessels, partially because the shipping
industry now has a clearer picture since
the P3 Networkthe global vessel-sharing
alliance proposed by Maersk, Mediterra-
nean Shipping Co. and CMA CGMwas
rejected by Chinese regulators earlier
this year.
People were wondering what would
happen to P3, so there was some uncertainty
there, Wang said. With that uncertainty
gone, he added people are really pretty
much into their own game in terms of fleet
replacement and realignments.
Wang said there are many discussions
going on among carriers and we expect
some of those discussions will be translated
into very firm requirements.
Tan said he did not believe big carriers
will have to avoid growth in China because
of the P3 decision. Chinese regulators do
make a distinction between organic growth
and growth from mergers or consolidation.
It should not have an impact on carriers
organic East-West growth ambitions,
he said.
Visser agreed, citing Maersk has been
allowed to grow to a very large size. It
is more the co-operation between carri-
ers of this magnitude which the Chinese
blocked, he added.
Meanwhile, the Chinese reaction to the
proposed 2M alliance will be watched
closely by the industry.
Low-Sulfur Challenge. A major
challenge facing the shipping industry for
the remainder of the decade will be higher
fuel costs as carriers continue their switch
from residual bunker fuel to distillate fuel
to meet requirements for reduced sulfur
In January, the amount of sulfur that
will be allowed in fuel burned in emission
control areas along the coasts of North
America and North Europe will drop from
1 percent to 0.1 percent.
This is a very important issue for carri-
ers, precisely as it has quite extensive costs
and consequences, Visser said. It would
in itself not be a problem if such costs
Source: Alphaliner,
Mediterranean Shg. Co.
Evergreen Line
COSCO Container Line
Hanjin Shipping
NYK Line
Hamburg Sd Group
Yang Ming Marine Transport Corp.
Hyundai M.M.
PIL (Pacific Int. Line)
K Line
CSAV Group*
* Merger pending.
Top 20 container lines
(As of July 31, 2014)

Share of

Orders as % of
Operator TEU Ships TEU Ships TEU Ships capacity TEU Ships existing fleet

There is no real
change in the
balance in 2014
compared to last year.
There are still too
many ships and the
over-supply outlook
remains in 2015.
H.J. Tan, principal,
Widdows said he was surprised by
Chinas rejection of the P3, but predicts
carriers will continue to join together to
seek economies in provisioning their fleets.
Lars Jensen, chief executive at SeaIntel,
said he believes the attempt by Maersk
and MSC to form the 2M, an alliance
just between themselves, will succeed,
although he noted that he miscalculated
in his initial view that Chinese regulators
would approve the P3.
could be passed on to the cargo, where
they belong, but this may not be possible.
In particular in Europe, there is fear
that much intra-Europe cargo will shift
back from sea (ferry, feeder, coasters) to
the much more polluting truck, he said.
When the change comes Jan. 1, Jensen
believes many carriers are going to try
to see if they can introduce a specific low
bunker adjustment factor specific to the
ECA zone. That will be the logical way to
go. Will they be able to pass that on to the
shippers? Thats an open question.
Widdows agreed, noting the industry
has not figured out how to pass along
the current cost of bunker in their price,
let alone what happens when you burn
distillate fuel.
Jensen said next years requirement for
lower sulfur fuel will have less effect on
deep-sea vessels, such as those traveling
from Asia to North America or Asia to
Europe since they spend a relatively short
part of their total voyage time in an ECA.
He said the change, however, has major
implications for short-sea operators in both
Europe and the U.S. Jones Act trades.
If you look at the European feeder
ships thats quite a mixture between old
and new ships, he said. If you look at
the U.S., particularly the Jones Act trade
those vessels are downright ancient to
put it mildly.
U.S. domestic carriers TOTE, Crowley
and Matson have all ordered ships that can
use liquefied natural gas (LNG) which will
allow them to comply with clean air require-
ments. So has Containerships, a Finnish
short-sea carrier, and the Port of Rotterdam
is building LNG fueling stations.
But Jensen said its still an open ques-
tion whether LNG is going take off as a
marine fuel.
Even more important, Widdows said,
will be the requirement in 2020 that car-
riers globally burn distillate fuel with a
maximum sulfur content of 0.5 percent
compared to 3.5 percent currently. The
industry is not prepared for that, he said,
adding there are shipping executives that
burn a candle every night and hope,
hope, hope that 2020 becomes 2025. The
economic effect is enormous.
And he added the carrier industry could
face further challenges if shipping becomes
subject to a regime to reduce carbon dioxide
Jensen said the 2020 requirement will
clearly intensify the advantage of compa-
nies with more efficient vessels. While the
requirements have been known for several
years, he explained many companies have
postponed deliberations as to what to do,
because theyve been more than busy with
the troubles in terms of making any kind
of profits anyway.
Jensen believes the low-sulfur require-
ments will drive a round of orders, not
of the big ships, but feeder-size vessels
that will operate in the emission control
He doesnt expect the urgency will be
as immediate in the intra-Asia trades, al-
though he said that could change. If the
Chinese decide to do something about the
pollution problems, slapping an ECA-zone
on Chinese coastal waters it would all of
sudden change the game quite a bit, he said.
cost-savings technologies.
Rise Of Charterers. An interesting
trend arising in the liner industry is the
increased dependence on chartered ships.
Tan noted charters account for about 48
percent of containerships operating today,
and non-operating vessel owners account
for 65 percent of newbuilding orders.
Ben Hanslip, an analyst at Clarksons,
wrote in a column published in the com-
panys Shipping Intelligence Network that
this is a dramatic change from two years
ago when in June 2012 the charter owners
share of capacity on order was 33.7 percent.
Containerships were once provided in
large numbers by tax-incentivized KG
investment partnerships in Germany, but
Hanslip said this system collapsed after
the 2008 financial crisis and severely
impacted the liquidity of traditional charter
He said new sources of finance have
emerged. Traditional charter owners are
still under pressure and largely unable to
engage in significant newbuilding activity.
More chartered tonnage is being supplied
now by public shipping companies. These
include firms such as Seaspan, Danaos,
Costamare, and Global Ship Lease, all
listed on the New York Stock Exchange,
and Rickmers; which is listed in Singapore.
CIMC, the worlds leading manufacturer
of shipping containers, has begun building
and leasing containerships.
In addition, bulk shipping companies
have expanded into the container busi-
ness, including Diana Shipping, which
established Diana Containerships, and
Navios Maritime Partners, which added
five containerships, plus two more, to be
delivered later this year to its fleet.
Most dramatically were reports, as this
issue of American Shipper was going to
press, that Scorpio Group which has
massive numbers of both tankers and
dry-bulk ships on order is entering
the container business with an order of
three ships and options for three more.
Scorpio reportedly plans to order vessels
with capacities of 19,200 TEUs each. If
the reports prove true, these would be the
largest containerships ever constructed.
Private equity companies are also
becoming important players in the con-
tainer industry, Widdows said. These
include Apollo and Oaktree Capital, which
both have joint ventures with Rickmers,
and the Carlyle Group.
However, Visser believes by and large
carriers will strive to maintain mixed
fleets of 50 percent owner and 50 percent
leased ships, similar to what the industry
has today.
Finding new ways
to finance, finding new
ways to go about the
investment in this sector
in an industry that does
not generate exciting
returns is certainly
a challenge.
Ron Widdows,
advisory board member,
Rickmers Holdings
Finance Hurdles. Finding new ways
to finance, finding new ways to go about
the investment in this sector in an industry
that does not generate exciting returns is
certainly a challenge, Widdows said. A
lot of ships are going to be ordered and this
oversupply situation is going to be extended
for a period of time, no doubt, failing some
pretty dramatic developments
He said a desire to drive down costs is
what drove the effort to create the P3it
was not about service, speed or reliability.
Widdows said container shipping has be-
come all about reducing costs, but finding
ways to do that will become increasingly
challenging in the future.
The two main methods that a carrier can
use to reduce costs today are slow steaming
and deployment of larger ships.
Here is the interesting part. If you look
at the fuel per TEU on Asia-Europe it is
essentially unchanged from 2006 to the
present date. The skyrocketing cost of fuel
has been pretty effectively offset by the
super slow steaming and by the increase
in vessel sizes, Jensen said.
While ships can be modified to expand
their capacity for example, adding a
mid-body or raising the bridge its often
more economical for the carrier to purchase
new vessels to take advantage of the latest









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Accelerate Your Advantage

fter high spot rates during the first
few months of the year, prices
for van, refrigerated and flatbed
transport came down to earth during the
summer, but a looming capacity shortage
fueled by pending regulatory changes, a
driver shortage, and increased demand
could push the spot market for rates into
the stratosphere.
As measured by DAT Solutions, van
spot rates ended the first week of August
at an average of $2 per mile, down six
cents, after hitting a record high of $2.08
toward the end of June that had first been
seen in March. Flatbed rates increased by
one cent in the same August time period,
inching up to $2.45 per mile on average
and continuing a steady rise since May.
During the same time, average reefer spot
rates fell by nine cents, continuing a trend
since June.
This picture of a week on the spot mar-
ket toward the end of the summer shows
that at any given time pricing goes up and
down. The trend for the rest of the year,
though, is toward spot market rates rising
significantly. Analysts warn shippers look-
ing toward the fall should talk with carriers
about contract rates or face a much more
difficult spot market, where capacity will
be harder to come by.
Frank Cirimele, director of products and
services at Cass Information Systems, said
the spot market should have been pricier,
judging by what he heard from carriers
and other analysts at the beginning of the
year. Cirimele helps put together Cass
Truckload Linehaul Index, which measures
rates paid by shippers. In June, the index
showed shippers spent an average of 5.2
percent more on transportation than in
the same month last year, continuing a
trend of increasing transportation spend.
In March, shippers spent 6 percent more
on truckload shipping year-over-year, fol-
lowed by increases of 5.7 percent in April
and 5.8 percent in May.
Even with these measured rises, carriers,
he said, expected to get much larger price
increases from shippers during the first
half of the year. Truckload and less-than-
truckload capacity also didnt tighten up as
quickly as he thought it would. Capacity
firmed up during the severe winter weather,
Cirimele said, but this was a blip in the
market and didnt have a lasting effect.
This fall, however, will be a different story.
Southeast and Northeast would seem to
be more vulnerable to capacity shortages.
Shippers that have been using a core
group of carriers for a long time, and have
long-term contracts in place with those
providers, should be fine when capacity
tightens up. They may have carriers come
to them to renegotiate those contracts
mid-stream analysts have reported this
renegotiation of contract rates has already
been occurring but these shippers will be
able to find trucks for their goods. Relying
on the spot market, Cirimele noted, will
be a riskier proposition. He said shippers
that havent maintained relationships with
carriers may have a long fall.
Unless you can give carriers a long-term
commitment, youre at the mercy of the
spot prices, he said. If youre a shipper
who has not been supporting a core group
of carriers and using mostly spot, now is
the time to see if you can negotiate some
contracts, provide some long-term com-
mitments of volume.
Capacity will tighten on the spot and
contract market due to seasonal transporta-
tion shifts, but Cirimele also said the use of
electric on-board recorders, as mandated
by the U.S. Federal Motor Carrier Safety
Administration, will also constrain capac-
ity because the devices will effectively slow
productivity for carriers. He said carriers
will lose flexibility regarding their driver
numbers when they move from a manual
system to an electronic system that wont
be forgiving.
You lose all flexibility, and even com-
mon sense, would be the carrier argument,
he said. Instead of a driver driving an
hour more you cant do that because
its so highly regulated, but by doing that
he could actually get home and be rested,
etc. Theres arguments on both sides, but
in general the feeling is [the devices]
are going to bring more stringent control
and take away any gray interpretive area
that you may have.
The driver shortage, which has been
talked about for years, will also impact
capacity in the near-term, he said. Ciramele
has seen carriers starting to proactively
address this issue and create better driver
retention by shortening routes to get drivers
home at night, improve training programs,
and increase pay. Carriers have also begun
to retire old equipment before its abso-
lutely necessary to get drivers in newer,
more comfortable vehicles, which leads to
higher driver satisfaction. Carriers are no
longer trying to squeeze every cent out
of a unit, he said.
Mark Montague, an analyst at DAT So-
lutions, said the run up to price increases
expected during the fall actually began last
Pumping up truck rates
Looming capacity shortage, regulatory demands
and driver shortage triggers.
As capacity tightens,
there will be less of a
spot market, and con-
tracts will be pushed to
the limit as carriers are
struggling to find capacity
to honor their contracts.
Frank Cirimele,
director of products
and services,
Cass Information Systems
Its going to get pretty interesting pretty
quick, depending on what kind of seasonal
push comes up this year, he said. As
capacity tightens, there will be less of a
spot market, and contracts will be pushed
to the limit as carriers are struggling to find
capacity to honor their contracts.
Cirimele warned spot market capacity
will tighten quickly because carriers will
need to use their equipment to fulfill con-
tracts, leading to less availability for ship-
pers accustomed to playing the spot market.
Spot prices will rise across the country, he
said, adding that intermodal pricing in the
As far as capacity in the current market,
demand was soft at the end of July, which
corresponds with the normal flow of
freight, especially with such strong spot
rates during June. Looking to September
and October, Montague said the good
year. The hours of service rules, and the
subsequent increase in electronic logging
devices, has already led to a number of
bankruptcies for smaller trucking com-
panies. With these companies exiting the
market during the third and fourth quarters,
capacity had already taken a hit before the
winter weather snarled the country and
threw a wrench into supply chains.
On the spot market, rates ran up to
levels we have never seen since weve been
tracking rates, and that goes back about six
years, Montague said, adding that hed
never seen anything like the affect the
winter weather had on the market during
his 34 years in the industry.
When spot rates peaked in March, that
caused another shift in the trucking indus-
try, as contract rates started to increase,
he said. Operating costs for carriers rose,
and they began to contact their contracted
shippers asking for a renegotiation in rates.
Theyre basically coming to the shipper
saying, Hey, if you want me to continue to
haul for you with the quantity of capacity
Ive furnished in the past, I need a deal,
Montague said. And frankly, a lot of these
contract carriers were not able to honor
their contracts in the first quarter of this
year because of the terrible weather and
the shippers went out to the spot market.
oil shipments, railroads have been having
capacity issues of their own.
Average train speeds are down, termi-
nal delays are increased, he said. The
railroads are the solution, but theyre also
becoming bogged down.
Shippers looking to successfully navi-
gate the impending pricing changes need to
diversify their shipping partners looking
to rail when needed, but also widening their
stable of truckers and equip themselves
with information about seasonal capacity
constraints on key shipping lanes. But the
government can also help the situation,
according to Montague.
One of the things thats really needed
is infrastructure spending to ease the
bottleneck, Montague said. He used the
example of truckers starting their shift at
5 a.m. in Philadelphia, spending two hours
sitting in traffic before they can really
start moving. He added that truckers also
need better parking facilities so theyre
not spending 20 minutes finding a space
to take a 30-minute break.
Im really a big advocate of Congress
getting their act together and coming up
with a spending plan that addresses all
those issues, Montague said. Whatever
the plan is, it needs to address the long-term
needs of the country.
economic numbers reported in the press
might cause problems with the market,
leading to a demand that truckers cant
keep up with. When this occurs, shippers
have gone to the railroads, but with record
agriculture seasons and increased crude
A lot of these contract
carriers were not able
to honor their contracts
in the first quarter of this
year because of the
terrible weather and
the shippers went out
to the spot market.
Mark Montague, analyst,
DAT Solutions
The Port of Long Beach is all for growing our business,
but also for striving to be socially responsible. So were
attracting more cargo with a free parking dockage
waiver and payments for more on-dock rail shipments
linking gains to air quality improvements and lessening
roadway congestion. The way we see it, these are smart
investments in a better quality of life.
And the right thing to do.
Rail cargo bonuses.
Less roadway
Better Together.
usinesses, economists, and policy experts say there
is a crying need for government to invest in infra-
structure because it is a foundation for economic
growth and makes U.S. exporters more competitive in global
markets. Meanwhile, federal, state and local governments are
severely constrained from closing the infrastructure invest-
ment gap by limited funds and anti-tax public sentiment.
While governments at all levels face flat or shrinking
Port investment brightens,
but outlook remains cloudy
for toll roads, airports
and other public assets.
(The following four stories paint a picture of the infrastructure environment in the United
States, including how one investment fund views the market, and how governments can
employ better management techniques to modernize infrastructure with less money.)
State Of Infrastructure. The Ameri-
can Society of Civil Engineers gives the
United States an overall grade of D+ for
infrastructure, including dams, transit and
electricity. Based on current investment
trends, it forecasts by 2020 the nation,
across all levels of government, will have
a $1.6 trillion shortfall between the amount
needed to bring all types of infrastructure to
an acceptable level for safety and efficient
function, and projected funding levels.
IBIS World estimates that local govern-
ments, which are responsible for almost
three-quarters of infrastructure investment,
have scaled back infrastructure spending
by 3.4 percent in the past five years, on an
annualized basis.
ASCEs projected funding gap for surface
transportation is $846 billion.
President Obama recently signed legisla-
tion extending the governments authority
to spend money on surface transportation
programs for another eight months, but
its a stopgap measure that required an $11
billion infusion of money to the Highway
Trust Fund paid for by increasing customs
duties, transferring funds from another
budgets, massive amounts of private capital
sit on the sidelines waiting for deals that
will generate a steady rate of return in the
low to mid-teens.
Financial deals for U.S. port infrastruc-
ture are heating up. But the market for
highways and other public assets is still
slow because inexperienced state and local
governments are skittish about voter back-
lash after several well-publicized transac-
tions involving large upfront payments for
long-term operating rights didnt include
sufficient protections for taxpayers or
facility users.
account and deferring tax-free contribu-
tions for corporate pension reserves so the
government ends up with more tax money.
About $40 billion a year is sent from
the Highway Trust Fund to states to help
pay for highway maintenance and new
Bailing out the Highway Trust Fund is
necessary because demand for construc-
tion projects exceeds revenues primarily
coming from motor fuel taxes, which are
in decline as Americans drive less and
use more fuel-efficient cars. The gas and
diesel tax is a fixed amount per gallon and
hasnt been raised in 20 years. Inflation has
eroded nearly 40 percent of its value, which
means money to fund projects doesnt go as
far as it once did. A gallon of regular gas
in 1993 cost $1.12 and today costs $3.50,
but the gas tax remains the same18.4
cents. Transportation advocates had hoped
Congress would pass a multi-year trans-
portation authorization bill that identified
a permanent source of alternative funding
for the Highway Trust Fund, but raising
taxes, especially in an election year, has
become the fourth rail of American politics.
A gas-tax increase has been automatically
ruled out by most lawmakers and the Obama
administration, and there is no consensus
on what other types of user fees or other
taxes would be appropriate.
Some states have made the difficult
choice to raise more money for transpor-
tation infrastructure. Last year, Virginia
passed landmark legislation to raise an
additional $3.5 billion for new road and
bridge construction, mass transit, rail and
other needs over six years. It eliminated
the 17.5 cent-per-gallon tax on motor fuels
and replaced it with a percentage-based
sales tax of 3.5 percent for gasoline and
6 percent for diesel fuel. It also increased
the state sales tax by 0.3 percent, with the
increase dedicated for highway maintenance
and operations.
Missouri voters on Aug. 5, however,
defeated a ballot measure that would have
established a dedicated infrastructure fund
paid for by a 0.75 cent sales tax increase.
The Missouri Department of Transportation
estimates that requests for infrastructure
spending across the state in the next 20
years will total $70 billion, but only $17.3
billion of funds will be available. Even if
some of those projects could be pared down
as unnecessary or a local responsibility,
the gap remains sizable. The measure was
expected to raise $5.4 billion over 10 years
for priority transportation projects.
Some argue that allowing the private sec-
tor to finance, build and manage roadways,
or buy the operating rights for existing
roads, would provide the necessary capital.
In most cases, however, private contractors
make money on roads by implementing tolls,
which many politicians strongly oppose.
The situation is complicated by the lack
of an overarching, national policy toward
public-private partnerships. States and
municipalities control much of the nations
infrastructure and legislation is needed to
define qualifying projects, create the frame-
work for concession terms and impose rules
of accountability, according to transport
finance experts.
Chicago Mayor Rahm Emanuel based
his decision last year not to do a deal to
run Midway Airport on lessons learned
from predecessor Richard Daleys much-
maligned decision to transfer control of the
citys parking meters to a consortium led by
Morgan Stanley. He listed his criteria for
privatization in a Chicago Tribune op-ed
last September:
[F]irst, a group of outside experts should
be impaneled at the start of the process to
monitor each step; second, there must be a
minimum 30-day review by the City Council
before the project is voted upon; third, there
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should be a clear set of standards so the pub-
lic can judge a potential partnership when
it is presented; fourth, the funds should be
invested in infrastructure rather than used
as a plug for short-term budget holes; fifth,
a true public-private partnership requires
that taxpayers maintain control of the asset
and share in management decisions and
financial profit.
Frustrated with what he characterized
as the unwillingness of Republicans in
Congress to advance a long-term funding
plan for surface transportation programs,
President Obama in mid-July said his ad-
ministration is moving to empower states
and localities to find private-sector partners
for needed infrastructure projects.
The Build America Investment Initiative
is a government-wide effort to increase
infrastructure investment by encouraging
greater collaboration between the public
and private sectors, expand the market for
private infrastructure financing, and better
utilize federal credit programs.
The president said a key part of the ini-
tiative is the creation of the Build America
Transportation Center at the Department of
Transportation to serve as a one-stop shop
that matches cities and states with private
developers and investors; provides guidance
on how to structure deals involving private
financing; and improves access to federal
credit programs, such as TIFIA, private-
activity bonds, and Railroad Rehabilitation
and Improvement Financing loans. RRIFs
complex bureaucratic requirements, for
example, have dissuaded many railroads
and shippers from taking advantage of the
loan program.
Institutional investors are sitting on
hundreds of billions of dollars and have
expressed great interest in building, main-
taining and operating infrastructure in
exchange for collecting revenue from users
or payments from public entities. But the
political and legal framework for long-term
leases of public infrastructure is not as
mature in the United States as it is in other
countries. Obamas initiative is designed
to make it easier and more appealing for
the private sector to get involved in public-
private projects.
DOT said its investment center will of-
fer hands-on support for states and local
governments trying to access federal pro-
grams and assemble public-private funding
packages, as well as tools and resources for
interested private partners. It also serves
as a clearinghouse for best practices from
states that have experience with private
investment in public assets.
The action builds on previous steps the
administration has taken on infrastructure
such as speeding up the permitting process
for large projects. The new investment
center will coordinate with the permitting
center to ensure projects are designed and
financed to move quickly through the per-
mitting process.
The administration also announced the
formation of the Build America Interagency
Working Group, co-chaired by Treasury
Secretary Jack Lew and Transportation
Secretary Anthony Foxx, which will address
barriers to private investments and part-
nerships across all infrastructure classes,
including ports, by bringing better coordina-
tion among all parties to accelerate projects
of national significance, particularly those
that cross state boundaries.
The Treasury Department will host an
Infrastructure Investment Summit on Sept.
9 to highlight innovative public-private
partnership approaches and the federal
governments resources.
A White House fact sheet pointed to the
$1 billion Port of Miami tunnel project as
a successful example of leveraging private
financing and expertise to build an asset
that would have taken much longer for lo-
cal governments to complete themselves or
been unaffordable.
Miami Access Tunnel Concessionaire,
a consortium of financial and construction
firms, was hired by the state to design, build,
finance and operate the tunnel for 35 years.
City and state officials say it will take
16,000 cars, taxis, buses, and trucks out
of the downtown area by creating a direct
bypass under Biscayne Bay between Inter-
state 95 and PortMiami, which rests on a
man-made island.
The tunnel is expected to shave 25 min-
utes from a port shuttle trucks round trip
to the port, potentially making it possible
for drivers to add another trip per day and
make more money, according to Port Direc-
tor Juan Kuryla.
The tunnel will also be an alternative
route for 7 million passenger vehicles, taxis,
buses, and provisioning trucks trying to
reach the worlds largest cruise terminal,
Infrastructure windfall
McKinsey says governments can generate $1.4 trillion
benefit through more efficient project delivery.
xperts at management consulting
firm McKinsey & Co. say there
are smart ways for governments,
in the United States and around the world,
to stretch their transportation dollars and
better leverage private investments to close
the gap in infrastructure supply.
A study last year by researchers at the
McKinsey Global Institute argues that na-
tions generally can obtain the same amount
of infrastructure for 40 percent less by
adopting best practices for project delivery.
But beyond the $1 trillion in estimated
annual savings, increased infrastructure
investment can support between $295 bil-
lion and $400 billion worth of increased
economic output per year, millions of jobs
and improved health, education and social
McKinsey, which helps about 90 percent
of Fortune 100 companies better organize
their operations, did not have an infrastruc-
ture practice until early 2012. The firm now
has more than 100 people focused on helping
companies and public-sector entities make
more efficient use of infrastructure.
It does not act as an advisor for financial
transactions in the sector.
Keeping pace with projected global pro-
ductivity growth will require $60 trillion
to $67 trillion worth of infrastructure con-
struction through 2030about $60 trillion
if the world spends the historical average of
3.8 percent of GDP on infrastructure and
$67 billion if countries seek to maintain an
estimated 71 percent ratio of infrastructure
stock to GDP, according to the study.
The projected demand covers all modes of
transport, power, water and telecommuni-
cations. And the costs could be even higher.
Most estimates of global infrastructure do
not account for either the additional cost of
making infrastructure more resilient to the
effects of climate change or lessening the
impact of infrastructure on the environ-
ment, the McKinsey team said.
China has overtaken the United States
and European Union as the largest inves-
tor in infrastructure, as a percentage of
GDP. China spends about 8.5 percent of
its economic output on the nations physi-
cal backbone ($503 billion in 2010), while
the United States and the European Union
spend 2.6 percent of GDP on highways,
bridges, water treatment plants and other
types of assets. U.S. investment peaked
at 3.1 percent in 2000 during the
bubble, according to McKinsey. About
two-thirds of U.S. infrastructure spending
is by the private sector.
The United States and Europe face the
problem of rehabilitating old, deteriorating
infrastructure that has reached or exceeded
its design life, but do not have a clear
strategy for recapitalization. U.S. invest-
ment, in particular, is lagging relative to
helping to reduce downtown congestion
and idling that produces harmful emissions.
There will be no tolls on the tunnel. The
concessionaire will make money through
availability payments from the state of
Florida. In addition to $156 million in con-
struction milestone payments, the company
will receive a $350 million payment at final
acceptance of the project and then monthly
payments for each month the facility is
available for public use. If the tunnel is
unavailable or the operator does not meet
performance benchmarks it will not get paid.
Miami-Dade County is contributing
about $358 million, and the city is pitch-
ing in with about $50 million, in addition
to donations of right of way by both par-
ties. China really only needs to spend 6.4
percent of GDP on infrastructure, while
Japan would be fine spending 2.6 percent
rather than 5 percent of GDP on the social
its economic growth.
China and Japan arguably have the op-
posite problem: a massive misallocation
of resources because of heavy spending
on many projects that generate low returns,
Tyler Duvall, a principal in McKinseys
infrastructure practice who led the policy
office at the U.S. Department of Transporta-
tion during the Bush administration, said
during an Infrastructure Week conference
in May organized by business groups.
China really only needs to spend 6.4 per-
cent of GDP on infrastructure, while Japan
would be fine spending 2.6 percent rather
than 5 percent of GDP on the social grid.
The Solution. To deliver $1 trillion in
savings from infrastructure development,
the McKinsey report recommends that gov-
ernments make better decisions selecting
projects for investment, streamline project
delivery and make the most out of existing
infrastructure assets through demand man-
agement, better operations and optimized
On the whole, countries continue to in-
vest in poorly conceived projects, take a long
time to approve them, miss opportunities to
innovate in how to deliver them, and then
dont make the most of existing assets before
opting to build expensive new capacity. In
many countries, the process of selecting,
building, and operating infrastructure
and the governance systems that could force
improvements has not changed for the
better in decades. In the construction sector,
for instance, labor productivity has barely
moved for 20 years in many developed
countries despite steady and significant
gains in the productivity of other sectors,
the infrastructure productivity report said.
All too often, it continued, a surpris-
ingly stable status quo persists in which
inaccurate planning and forecasting lead to
poor project selection. A bias among public
officials to build new capacity, rather than
make the most of existing infrastructure,
is common, leading to more expensive
and less sustainable infrastructure solu-
tions. A lack of incentives, accountability,
and capabilities as well as risk aversion
has prevented infrastructure owners
from taking advantage of improvements
in construction methods such as the use
of design-to-cost and design-to-value
principles, advanced construction tech-
niques, and lean processes. Infrastructure
authorities frequently lack the capabilities
necessary to negotiate on equal terms with
infrastructure contractors, rendering them
unable to provide effective oversight and
thereby drive performance.
Improving project selection could save
$200 billion a year globally, McKinsey said.
Often money is better spent on resolving
bottlenecks, improving land-use planning,
enhancing public transit and managing
demand than widening an arterial road
into a city.
One of the problems transportation
planners face is political pressure to back
projects favored by powerful politicians.
Duvall and colleague Mike Kerlin said the
best way to neutralize those screaming the
loudest is to establish clear metrics about
what a project should achieve and conduct
an extensive benefit-cost analysis so that a
project is scored simply on the facts. Beyond
that, planning agencies should use a system-
based approach so projects are considered
as part of a larger program and not simply
standalone, individual projects.
The United States, for example, does a
poor job prioritizing surface transporta-
tion projects based on long-term multiplier
effects for goods movement, congestion
reduction, safety and reduced air pollu-
tion. The 2009 Recovery Act highlighted
the weakness of quickly getting money to
the best projects in the queue, according
to Duvall. Those types of externalities
should be monetized a value placed on
travel time savings, fatality reduction, land
development, and so on to help identify
projects that deserve resources.
The pipeline is not conducive to spend-
ing money rapidly on high-return projects,
which leads us to spend a lot of money
quickly on either low-return projects or
creates pent up capital, he said. Our push
has been lets systematize this as much
as possible so that we can compare across
projects. There is no question that the
science of cost benefit is more art in many
cases than it should be, but that doesnt mean
we shouldnt start to define that, he said.
Duvall said McKinsey was able to con-
vince a strong anti-tax Republican governor
it was advising to shift the states portfolio
mix from the existing plan for new trans-
portation projects because it could show
a massive improvement in the return on
This is a guy who never supported tax
increases in any area previously, but was
willing to do so when it was clear taxpay-
ers would get their moneys worth from the
government, Duvall said.
McKinseys analysis also resolved a
dispute between the Swedish Ministry of
Finance, which wanted to clamp down on
transportation spending, and the Transport
Ministry, which wanted to build more roads
and bridges.
So we came back to the Finance Ministry
and said, there are 15 things you can do
to drive down costs and deliver projects
more efficiently at the road agency, but they
still need a lot more money to achieve the
results you want, Duvall said, adding,
Savings doesnt mean you dont need more
The United States has begun to imple-
ment some reforms in its highway program.
In 2012, Congress passed a two-year surface
transportation measure that consolidated
various programs, calls for streamlined en-
vironmental reviews to get projects started
faster, and set standards for measuring and
reporting how projects are meeting intended
mobility, safety or economic objectives.
Project Delivery. There is huge room
for improvement in the way governments
manage construction projects starting with
land acquisition, planning and permitting to
tendering, lean construction and oversight,
according to McKinsey analysts. Investing
heavily in early-stage project planning and
design, and engaging cross-functional
teams from the government and contrac-
tor side, can reduce the need for expensive
change orders later in the process. Con-
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tractors can also be encouraged to use the
lowest-cost means to achieve performance
specifications and advanced construction
techniques such as prefabrication and
The report said nations could save $400
billion annually and accelerate project
completion by using these types of man-
agement practices.
If you look at every major industrial
company in the world that is building things
like factories, refineries, and nuclear facili-
ties, they are all basically deploying now
a sophisticated approach to construction
process management that is lacking cur-
rently around the globe in the public sector,
Duvall said.
Thats not to say the public sector is
worse or dumber. The reality is the incen-
tive structure around these projects is not
driving the sorts of capabilities within
these government organizations to basically
insist on this type of activity that reduces
waste, he added.
Government oversight is made more dif-
ficult because agencies tend not to collect
and analyze data about the cost structure
of contractors the way private companies
scrutinize their suppliers and they lose
management talent to retirement or the
private sector, the former DOT official said.
The reality is what you need is a lot
leaner organizations that understand the
complexity of project delivery. You dont
need thousands of engineers, you just need
to deploy some of these techniques into a
unit that can oversee the most complex
projects, he said.
Expanding Capacity. Increasing
utilization of existing assets, optimizing
maintenance planning and using demand-
management can save another $400 billion
per year globally.
Transportation experts, for example, say
technology and pricing mechanismssuch
as time-of-day tollingcan squeeze more
capacity out of existing highway networks.
Roadway sensors, cameras and other tech-
nology can tell highway operators when
congestion is increasing and when to raise,
or lower, tolls to encourage people to drive
during non-peak hours.
Demand management remains politically
unpopular because of tolls, but we believe
it has a ton of potential and its time will
come, Kerlin said.
Technology can also play a big role with
regard to preventive maintenance that can
extend the life of infrastructure and save
money. Smart water networks, for example,
have sensors that can detect leaks and avoid
the risk of over maintenance.
The United States currently ranks low
among the most developed nations when
it comes to best-in-class infrastructure
because of an unwillingness to invest and
a lengthy decision-making process, ac-
cording to many experts. One reason for
delay, Duvall said, is other countries make
a decision about whether a project meets
national goals and then work to mitigate
any social or environmental costs, while
in the United States those external costs
are part of the calculus as to whether the
project should go forward at all.
Changing that dynamic requires a new
way of thinking about the big picture,
Duvall said.
You have to prioritize. You need to
decide that certain projects matter more
than others. You have to put those projects
on a different track than normal. And you
need clear decision rights, he said.
And this, I think, is where we struggle
compared to the rest of the world. When you
take a major port project, for example, that
includes the Army Corps of Engineers, the
Environmental Protection Agency, maybe
the Federal Highway Administration, state
and local resource agenciesthe owner of
the project is unclear. Everybody owns a
decision, but nobody owns the decision,
he explained.
The consultant pointed to New South
Wales, Australia, where a dredging project
in Port Sydney was taken from concept to
completion in six months to illustrate how
government can expedite a project when
managed well.
The project got to the front of the queue
because there was a consensus among the
planning entities, which were unbiased and
felt the project had merit, evaluated against
its environmental costs, Duvall said.
It would also help if there was more
transparency and certainty in the process
so that project sponsors can find out a
projects status, whose desk it is on, and
what concerns exist.
On the tactical level, Kerlin said, gov-
ernments need better infrastructure for
infrastructure, meaning more data and bet-
ter accounting for infrastructure stock and
performance. Other recommendations for
project execution include having qualified
civil engineers on staff, being proactive in
stakeholder engagement to nix any potential
complaints early on, increasing coordina-
tion between institutions and insulating
technocrats from politicians.
Ontario Teachers cautious approach
to new infrastructure rights
he Ontario Teachers Pension Fund,
which owns marine terminal opera-
tions at ports in New York and Van-
couver, Canada, is actively seeking to grow
its portfolio of infrastructure assets. But a
scarcity of available assets, especially in the
United States, makes it difficult to acquire
long-term rights to operate facilities such as
ports and toll roads, Andrew Claerhout, who
leads the Teachers Infrastructure Group,
said in an in-depth interview.
Ontario Teachers manages CAN $145
billion ($132 billion) worth of net assets,
including stocks, real estate and private
equity funds, but only 8 percent ($11 bil-
lion) in the infrastructure space. It has
generated a 10.2 percent return since 1990
for its 307,000 active and retired teachers.
The pension funds infrastructure hold-
ings include GCT Global Container Termi-
nals Inc., which operates Global Terminal
and New York Container Terminal at the
Port of New York and New Jersey and the
Vanterm and Deltaport container termi-
nals at the Port of Vancouver, through its
subsidiary TSI Terminal Systems. It also
owns three water and wastewater utilities
and an electric company in South America;
a water desalinization plant in Sydney,
Australia; and four privatized airports in
Europe, including large ones in Brussels,
Belgium, and Copenhagen, Denmark; a
gas distribution company; and a stake in
High Speed One, the company that owns
and maintains the tracks and train stations
on the London-Paris rail line.
In the next five to seven years we want
to get to $18 billion worth of infrastruc-
ture assets, Claerhout said. There is a huge
global need for infrastructure renewal and
building, but there are not many assets that
are available or attractive for investors. The
situation in the United States is made more
difficult by a slow political acceptance of
privatization, according to financial ana-
lysts and infrastructure experts.
Were hoping that one day that sleeping
giant awakens and there is a much bigger
opportunity here in the United States,
Claerhout, who sits on GCTs board and
previously managed Teachers private
equity transactions in consumer, retail and
industrial sectors, said. The market is much
smaller and more difficult than it should be.
Ontario Teachers tends to invest $300
million to more than $1 billion in any deal.
The funds goal is to make the companies
or assets it buys more valuable and it cant
devote a lot of financial or management
resources to smaller investments because
the return on effort is typically low, the
former Bain & Co., executive said.
Low infrastructure inventory means
valuations are typically higher than a con-
servative investor might prefer, so Ontario
Teachers expansion strategy is to focus on
industries, such as ports and water works,
where it already has a presence and expe-
rienced management team. In that regard,
it almost acts as a semi-strategic investor
and uses its expertise to help optimize the
performance of any companies it acquires.
In a separate interview, Claerhout said
Ontario Teachers is interested in buying
Maher Terminals, which Deutsche Bank
recently put on the auction block. Maher
operates the largest terminal in the Port
of New York and New Jersey, as well as
the Prince Rupert intermodal container
terminal on Canadas west coast.
We have an interest in those terminals
for obvious reasons. They are in the same
regions that we are, he said, without directly
saying whether the fund had placed a bid
for Maher.
The Canadian pension fund is also inter-
ested in toll road investments, but taking the
plunge would require a better regulatory
environment and government policies,
Claerhout said. It has bid on, but failed to
win any toll road competitions so far.
Claerhout said Australia is trying an
interesting model to incentivize local
governments to engage in public-private
partnerships. The federal government Down
Under has a plan to offer states a 15 percent
premium on top of the sale price for a long-
term concession of an infrastructure asset if
the proceeds are reinvested in other infra-
structure modernization projects. A state,
for example, that sells operating rights to a
bridge for $1 billion would receive an extra
$150 million from the federal government.
I think airports would be a big oppor-
tunity in the United States, as well. Youve
got the most airports of any country in
the world. And most of them are still not
privately owned, Claerhout said.
Chicago Mayor Rahm Emanuel last year
pulled the plug on a solicitation to privatize
Midway Airport for 40 years after one of
two consortia vying to operate the facility
dropped out. Emanuel is considering the
lease of city services to help bring down the
citys mounting debt. He cited the lack of
a competitive bidding process as the main
reason for his decision. If the deal had gone
through, Midway would have become the
first major commercial airport in the United
States to be transferred to private hands.
Another potential investment opportu-
nity is Brazil. It has inadequate highways,
freight rail, inland waterways and ports
for efficient cargo movement. The South
American giant is currently auctioning
concessions of marine terminals at many
coastal and inland ports in an effort to in-
ject private capital into an underdeveloped
sector that has constrained the countrys
ability to trade efficiently with the rest of
the world. The government is also launching
a major dredging program at several ports.
Combined investment is expected to exceed
$26 billion in the next four years. But Claer-
hout said Ontario Teachers, which has real
estate and passive corporate investments in
Brazil, is wary about investing in Brazilian
infrastructure in part because of yields on
long-term government bonds.
Brazil is one of those markets thats too
large to ignore. Its got 200 million people.
The need for infrastructure is abundant.
So were approaching it quite cautiously. I
wouldnt put it at the top of my list, he said.
Brazil has a reputation as a difficult
However complex it gets,
well point you in the
right direction
More demanding customers. Tougher regulatory
compliance. Harsher penalties. In todays
increasingly challenging market, you need an
expert who doesnt just understand the specic
pressures youre under, but who knows exactly
how to solve your particular problems and help
you get the results you want.
Because we dont do anything else,
we lead the way in transport and
logistics insurance.
Port infrastructure attracts
buyers in 2014
PM Terminals, the worlds third-
largest container terminal operator
in terms of throughput, announced
July 21 that it has agreed to sell its ultra-
modern facility in Portsmouth, Va., to two
investment funds.
Alinda Capital Partners is a U.S.-based
infrastructure investment firm, and Univer-
sities Superannuation Scheme Ltd., which
has a global infrastructure portfolio, is the
largest private-sector pension fund in the
United Kingdom.
APMT said the transaction is expected to
close in the third quarter, subject to regula-
tory approval, and the facility will be re-
named the Virginia International Gateway.
A week later, Ports America, a large in-
dependent terminal operator and stevedore,
said it plans to soon acquire a 30 percent
stake in K Lines U.S. terminal subsid-
iary, which operates container facilities in
Long Beach, Calif., and Tacoma, Wash. The
companies said Ports America will use its
expertise and technology to improve truck,
cargo and vessel flow and improve safety at
International Transportation Services facili-
ties to support the handling of ultra-large
containerships and the Japanese carriers
transpacific service.
The deals underscore the continued
interest by equity investors in U.S. port
infrastructure. The number of transactions
has cooled off since the recession, as have
the super-heated prices to consummate
long-term concession agreements with port
authorities. But investors with long-term
horizons, such as pension funds, are still
very drawn to the steady returns of container
terminals as trade continues to grow, albeit
at a slower pace than before 2008. Last
year, the state of Virginia rejected offers by
APM Terminals and a consortium headed
by JPMorgan Chase to privatize the entire
Port of Virginia. Virginia officials opted
to make structural reforms and continue
operating the port themselves.
Deutsche Bank is also looking to sell
part or all of Maher Terminals, the largest
terminal operation in the Port of New York
and New Jersey, as well as the container ter-
minal in Prince Rupert, British Columbia.
Earlier this year, APM Terminals sold a
half-interest in its Elizabeth, N.J., terminal
to Brookfield Asset Management. The deal
comes on the heels of Brookfields purchase
of a 49 percent interest in MOLs TraPac
terminals in Los Angeles and Oakland,
Calif. Brookfield also has port investments
in Europe, China and Australia.
In July, Holt Logistics, which runs the
Philadelphia Regional Port Authoritys
Packer Avenue Marine Terminal, an-
nounced its partnering with the South
Jersey Marine Corp. to build a new terminal
in Paulsboro, N.J., on the Delaware River.
The APM Terminal site in Portsmouth is
unique in the United States because it is a
privately owned facility, built from scratch
by the company on private land for about
$540 million. Container terminals in the
United States are typically owned by port
authorities which have increasingly sought
multi-decade concessions under which com-
panies are leased land and given exclusive
operating rights in exchange for some com-
bination of infrastructure investment, cash,
revenue-sharing or other considerations.
Commissioned in 2007, the semi-
automated APMT facility uses remote-
controlled, rail-mounted gantry cranes to
handle container yard operations. At the
time, it was considered the most modern
facility in the United States, and to date,
only one or two other facilities have the same
level of technology to improve efficiency.
In 2010, APMT leased the Portsmouth
marine terminal to the Virginia Port Au-
thority for 20 years in response to lower-
than-expected container volumes due to the
global recession and maneuvering by port
officials to attract most other shipping lines
to the rival Norfolk International Terminal
at the Port of Virginia. The container ter-
minals will continue to operate under one
umbrella for the next 16 years.
Soon after taking office early this year,
Gov. Terry McAuliffe publicly suggested the
APMT lease negotiated under his predeces-
sor, Republican Bob McDonnell, was a bad
deal and should be renegotiated. Under the
lease, the VPA pays APMT $40 million
per year, although the amount increases
through the remainder of the lease and can
rise further depending on cargo volume.
APMT, a unit of Danish shipping con-
glomerate A.P. Moller-Maersk, was more
interested in Virginia buying the facility
outright and McAuliffe rejected its asking
price of $600 million, according to The
Those decisions were the genesis for
APMTs sale announcement, which did not
mention the price paid by Alinda and the
British pension fund.
We are proud of the facility we built
and the relationship we established with
the Commonwealth of Virginia and the
Virginia Port Authority. However, owner-
ship of this terminal does not fit with our
global strategy and ambition to operate
and develop ports. We have chosen to sell
our Portsmouth terminal because we are a
non-operating lessor of the facility to the
Commonwealth of Virginia for the next 16
years. We are confident Alinda and USS are
the right owners to maximize the business
opportunities in the future and that they will
be good partners for the port authority and
Commonwealth, APMT Chief Financial
Officer Christian Moller Laursen said in
a statement.
Being a passive landlord that collects
rent is better suited for financial investors,
spokesman Erik Eisenberg elaborated.
USS and Alinda see this acquisition as
an important addition to our infrastructure
portfolios. We are attracted to the terminals
modern design and high levels of automa-
tion, which ensure that the facility will be a
key component of the ports infrastructure
now and in the future. We look forward to
continuing the excellent relationship with
the VPA and the Commonwealth of Virginia
that APM Terminals has developed over
the years and intend to collaborate with
the Commonwealth to explore any future
expansion of the terminal to support the
Port of Virginias continued growth, the
companies said in a joint statement.
Under the terms of the sale, the partner-
ship will purchase all of the issued and
outstanding capital stock of APM Terminals
Virginia, Inc., which owns the Portsmouth
facility. The deal will not have any impact
on customers or staff, the partners said.
place to do business, but the country is
getting increasingly comfortable allowing
engineering companies to also operate
infrastructure facilities, Mike Kerlin a
principal at McKinsey & Co., said at a
recent infrastructure symposium in Wash-
ington. Another positive development is
the federal government offers batches of
public-private partnership projects at one
time to create greater incentive for private
groups to bid.
Brazils ports ministry, for example, is
currently offering concessions for terminals
in multiple ports to strategic and financial
investors that will help modernize the
Claerhout expressed interest when asked
whether Ontario Teachers plans to take
advantage of the shale energy revolution
in North America, stating a mid-stream
energy play in storage and transportation
is under consideration.
n an effort to reduce air pollution, West Coast ports and
shipping lines have spent hundreds of millions of dol-
lars to install electric substations on docks and retrofit
vessels with equipment that can receive power from shore.
The new infrastructure is a substitute for running shipboard
diesel engines to supply energy for heating, cooling, refrig-
eration, lighting, electronics and other systems while docked
at the pier.
Diesel emissions from vessels and other
industrial activity adjacent to population
centers have become a major health issue.
Political pressure has forced many port
authorities, intent on avoiding potential
political or legal obstacles that could hinder
future growth, to mitigate their environ-
mental impact. In addition to electrifying
the docks, some ports have encouraged
vessel operators to switch to cleaner fuels
and slow down on approach, converted
trucking providers to clean-diesel engines
and experimented with alternative-fuel
Ports in California dont have a choice.
Reducing harmful emissions at berth is a
state mandate.
But a promising new system being tested
at the Port of Long Beach could prove to
be a much cheaper alternative and raises
questions about whether the rush to invest
in shore power was premature. The tech-
nology, developed by Rancho Dominguez,
Calif.-based Advanced Cleanup Technol-
ogy Inc. (ACTI), essentially captures engine
emissions at the smoke stack through a
direct connection to the exhaust outlets,
and funnels the soot and gases to an after-
treatment device.
(A similar system is being tested at the
Port of Los Angeles. See AMECS faces
challenge from rival developer, page 50.)
Ship-to-shore power, also referred to
as cold-ironing because the ships engines
grow cold when shut down as a power
source, is the primary way the maritime
industry has chosen to comply with the new
rules. Shore power can cut source emissions
by 95 percent.
(It should be noted, however, that electri-
fication doesnt eliminate air pollution it
merely displaces from the port to utility
plants that are often in less populated areas.
Power plants are regulated and have vari-
ous emission controls depending on their
age, but they can also be powered by coal
or other fossil fuels.)
Under California statute, container and
refrigerated cargo vessels, as well as cruise
ships, are required to reduce at-berth emis-
sions this year by turning off auxiliary
engines and connecting to another power
source, or using alternative technology that
reduces emissions by an equivalent amount.
The rule is being phased in. Half the ves-
Shore power
Small Calif. firm wants
to commercialize cheaper,
clean-air alternative to
electrifying berthed vessels.






sels in those categories, and half of each
companys fleet, must hook up to electric
power. The vessel threshold rises to 70
percent in 2017 and 80 percent in 2020. The
California Air Resources Board (CARB) is
allowing a transition period as ports finish
installing the necessary infrastructure and
vessel operators become familiar with the
new technology on their ships.
The Port of Long Beach invested $200
million to install shore power stations at its
terminals. Next door at the Port of Los An-
geles, about $180 million has been invested
over the last decade to equip 25 container
and cruise berths with electric power. Port
Hueneme is spending $13 million, the bulk
of it from its own resources, to electrify one
of its wharves. Last November, the Port of
Oakland completed the construction of its
shore power infrastructure at a cost of $55
million, with some tenants investing another
$10 million, spokeswoman Marilyn San-
difur said. And the Port of Seattle has two
cruise berths outfitted with electric power.
The Oakland port authority, according to
its website, charges $267 per hour plus tax
for shore power usage, on top of a $4,430
fee for commissioning the first time a vessel
plugs into the grid. At that rate, a container
vessel spending three days at berth could
spend more than $19,000 for electricity.
Meanwhile, the cost to retrofit a con-
tainer vessel is $500,000 to $2 million,
according to multiple industry sources.
Significant alterations, which take six to
eight months, are required to run cabling
from the electrical panel in the engine room
up to the main deck.
Hapag-Lloyd in 2012 said it was modify-
ing 15 vessels. Its system is comprised of
a 40-foot container located at the stern of
the ship that contains electrical components
and an extendable cable drum. In the past
three years, many new containerships have
been designed with the necessary electrical
About one-third of APLs container fleet
is outfitted with shore power connections,
David Wong, a spokesman for parent com-
pany NOL in Singapore, said. He declined
to reveal how much the carrier has invested
in the systems.
ACTIs Advanced Maritime Emission
Control System (AMECS) is the only alter-
native technology to shore power that has
an approved test plan from CARB, but the
fixed, on-dock prototype had to be modi-
fied to optimally function in a container
terminal. Testing has recently shifted to a
mobile, barge-mounted system that appears
to overcome key logistical challenges of the
original version. The wharf-based scrubber
nicknamed sock on a stack because
of the big bonnet that fits over the entire
exhaust stack potentially can interfere
with cranes and longshoremen loading and
unloading containers. It also requires ships
to come to a particular berth for service.
Ruben Garcia, ACTIs president and
founder, told American Shipper the concept
was always to have both barge and shore-
based service.
The barge enables ACTI to bring the
emission-control system to the customer
anywhere in the port. The new design also
separately connects to each exhaust pipe
within the stack.
Garcia said he has been working on the
AMECS concept for 10 years. Early on he
used his own funds and a $3 million grant
from the U.S. Environmental Protection
Agency. He was unable to attract venture
capital because people werent sure how
the emissions regulations would change,
whether they would be enforced or if some-
one came up with a different technology.
The South Coast Air Quality Manage-
ment District, with the help of a $2 mil-
lion grant from the Port of Long Beach,
is administering the next phase of the
demonstration program to assess AMECSs
effectiveness and durability during a real
duty cycle. Garcia said he fronted his own
money for the barge development because
it took a year for the Long Beach Board of
Harbor Commissioners to approve the final
contract in February. ACTI had to work with
regulators to develop a test protocol because
no one has ever captured emissions from a
he potential commercialization of
AMECS is complicated by a patent
infringement dispute between Ruben
Garcia and a company called Clean Air
Engineering-Maritime Inc., which is con-
ducting a pilot test of a barge-mounted
exhaust capture system at the Port of Los
Clean Air Engineering-Maritime was
formally founded in 2009 by Nicholas
Tonsich, who served as president of the Los
Angeles Harbor Commission for several
years last decade.
According to documents from a Feb. 27
hearing before the U.S. District Court for
the Central District of California, Tonisch
once represented Garcias Advanced
Clean-up Technology Inc. as an attorney
and was an early business partner with
Garcia on the emissions control project.
Tonisch broke off on his own in 2006 and
began using ACTIs intellectual property
and trade secrets to compete directly with
ACTI, Garcia claims.
In 2012, the Port of Los Angeles
awarded a $1.5 grant from its technol-
ogy advancement program to help fund a
Clean Air Engineering pilot at the Trans
Pacific Container Service Corp. (TraPac)
terminal. Under the agreement, TraPac is
to contribute $1 million and the remaining
$8.5 million is to be funded by Tonsich.
ACTI claims Clean Air Engineering vio-
lated its patent on a barge-mounted exhaust
capture system. Clean Air Engineering-
Maritime denies the claim and counters that
it has modified the ductwork that attaches
to a vessels smokestack.
In an interview, Tonsich said he filed a
pre-emptive motion for summary judgment
against ACTI to prove his exhaust capture
system doesnt infringe on ACTIs patent.
Clean Air Engineering-Maritime uses ce-
ramic filters, an inverted funnel that doesnt
grasp onto any of the exhaust outlets and
doesnt incinerate waste. Hovering over
the smoke stack appears to be the primary
differentiator between the rival systems.
Tonsich claimed there doesnt need to be
an airtight fit because the negative pressure
on the units fan sucks in the exhaust, like a
furnace hood over a stove or in a laboratory.
The ash-based waste collected by the
filters is disposed at a hazardous material
site, he said.
A ruling is expected by October.
Tonsich said he is waiting for CARB
to give final approval for protocols to test
his barge-based system, following previ-
ous testing of a land-based system. His
company has done preliminary testing
on five to six vessels. Once CARB gives
the go-ahead for final testing, Clean Air
Engineering-Maritime will have to dem-
onstrate its capability on five vessels over
250 hours. Testing, submittal of data and
CARB review could be completed by the
end of the year, he predicted.
A CARB spokesperson said the agency
would not comment on the Tonsich evalu-
ation, citing a confidentiality agreement.
The agency doesnt publicly discuss its
technology certification work until certain
milestones are reached or a pilot project is
Tonsich said he anticipates his single
barge, assuming it is certified, will work
exclusively at the TraPac terminal for
third-party carriers with vessels that do
not use shore power to comply with the
air regulations.
AMECS faces challenge from rival developer


non-stationary source, the environmental
entrepreneur said. It took two years, 18 test
plan revisions and dozens of emissions tests
to get CARBs blessing to proceed, accord-
ing to the companys website.
The barge runs on a Tier 4 diesel gen-
erator, the least polluting engine available,
and the goal is for it to eventually have zero
emissions. The original plan was to pipe the
barges own exhaust back into the system.
Garcia and associates say they want to lead
by example when it comes to emissions
reduction. By September, ACTI will swap
out the diesel engines for new propane ones
while continuing to explore other fuel types.
Earlier this year, ACTI was able to prove
it could successfully connect to the vessel
exhaust stack and safely operate the barge-
based system. Another 200 hours of testing
is underway. The environmental technology
company has already hooked up to smaller
vessels operated by Hapag-Lloyd and ZIM
and is scheduled this summer to service
8,800-TEU and larger vessels from OOCL,
a pure car carrier at the Toyota terminal and
a passenger vessel, Garcia said.
CARB will analyze the data and deter-
mine whether to certify the technology as
meeting its efficiency standards for control-
ling particulate matter and nitrous oxide.
If the unit achieves 90 percent or greater
efficiency through a combination of
emissions capture and treatment it will
be declared equivalent to plugging a ship
into shore power.
The goal is wrap up testing in a couple
of months and have the verification in place
by the end of the year, Rick Cameron, Long
Beachs managing director of environmen-
tal affairs and planning, said.
Additional testing may be required in
the future if ACTI wants to expand to more
engine types, he added.
Based on the dock-mounted demon-
stration, the technology does seem to be
ready for commercialization. Tests on 32
different vessels showed the system reduced
particulate matter, sulfur dioxide, volatile
organic compounds and nitrogen oxides
by more than 98 percent, South Coast Air
spokesman Sam Atwood said via e-mail.
ZIM, the Israeli shipping line, declined
through a representative to comment on its
participation in the pilot program.
Garcia originally developed a wet
scrubber that uses water and an electrical
charge to attract the particulate matter and
other compounds, but the resulting waste
was high in heavy metals and considered
hazardous. That required trucking it to a
hazmat site and paying disposal fees. It
also meant the vessel company, under law,
was perpetually responsible for the cost
of moving the material in the event the
government ever declared the site unsafe
and had to relocate it.
Instead, Garcia and his team came up
with a dry system that incinerates the par-
ticulate matter. A crane on the barge hooks
up high-heat ducting directly to each pipe
venting exhaust from the auxiliary engines,
rather than draping the bonnet over the
entire smoke stack funnel. A fan at the
end of the system creates negative pressure
so the emissions wont blow back into the
engine room. A diesel filter removes the
particulate matter and then the exhaust gas
goes through a catalytic converter to remove
nitrogen oxide. Sulfur dioxide is removed
in another stage and the small amount of
remaining condensation is vented to the
The filter incinerates the particulate mat-
ter and at the end of six months produces a
coffee can full of ash, which ACTI gives to
concrete manufacturer to use as a bonding
agent, Garcia said.
Port of Long Beach officials view
AMECS as a potential solution for break-
bulk, roll-on/roll-off and tanker vessels
not covered under the CARB shore-power
regulation and a way to provide compliance
flexibility for charter operators, Cameron
said. Most vessels in those categories are
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chartered from leasing companies that
are unlikely to spend capital to install
electric equipment when their customers
dont operate regularly scheduled services
that repeatedly call at the same California
And most container fleets charter a
significant number of their vessels, too.
AMECS would allow them to move third-
party and company-owned assets inter-
changeably to other routes, as businesses
needs dictate, without leasing companies
having to spend money on retrofits.
Thats going to help us be competitive
because customers want options for de-
ploying their fleet, Cameron said.
Cameron envisioned a future where op-
erators of non-container cargo vessels would
be offered incentives to use AMECS and
help Long Beach meet its clean air targets.
Incentive programs are a common tool for
maintaining the ports competitiveness and
can be more effective than mandates that
have the potential of driving international
carriers and cargo owners to other ports,
Cameron suggested.
On July 1, the port began waiving
dockage fees for vessels that plug into
t sounds simple enough.
Pull ship up to dock.
Plug power cord into socket and voil
electricity to run everything from re-
frigeration to computers.
But the process of delivering high-voltage
shore power to a large commercial vessel
requires a careful minuet between the crew
and longshoremen to ensure it is done safely.
American Shipper spoke with a top of-
ficial at a container terminal at the Port
of Long Beach to learn the basics of cold
Under California regulation, once a
vessel comes alongside the pier it has
three hours combined at arrival and de-
parture during which it can operate on
its own generator sets while preparations
are made to transition to or from electric
Longshoremen first have to wait for U.S.
Customs to board the vessel, verify the
crew manifest and complete their rounds.
That process usually takes about an hour.
Once the terminal is allowed to put its
men onboard care must be taken to make
sure the system is not live and can be safely
touched. An individual on the ship commu-
nicates by radio with workers on the pier and
there are strict safety regulations governing
the type of clothing that can be worn and
procedures for vessel electrification.
When the system is grounded dock work-
ers start the process of putting the ships
electric cables down in a vault located on
the wharf and connecting them. There are
sliding sleeves on the outside of the cable
that are attached to chains to take the strain
off the cable as the vessel moves due to tidal
change or other factors.
A crew at the electric substation then
begins to gradually start sending power
to the ship. Powering up has to be done
in stages to make sure equipment on both
ends isnt damaged. As the ship-board
generators are automatically shut down
the shoreside power starts to absorb the
functions of the ship.
Its not like a light switch. Its done
in a very particular way so everything is
protected, the official, who only agreed to
speak on background, explained.
Close communication with the onboard
liaison and ship crew is critical, especially
since crew changes are common and the
person in charge on the vessel may not
have a full understanding of the detailed
procedures required.
The plug-in process takes about 45
For the remainder of the stay the shore-
side mechanics maintain radio communi-
cation with the ship in case there are any
About an hour to 1.5 hours before the
vessel heads back to sea, the terminal will
start the disconnection process, releasing
power back to the ship in a controlled man-
ner. When the vessel is back on its own
power, the plugs are disconnected from the
vaults, the longshoremen ensure the cables
are stored safely back on the ship and the
vault is closed.
Some vessels are missing the three-hour
CARB window because crews are still on
a learning curve, Lee Kindberg, Maersk
Lines North American environmental
director, said.
Ports still need to invest in shore power
infrastructure, the terminal official said.
More electric vaults on the wharf are needed
because ship sizes have greatly increased
since the infrastructure was planned in
2010. Carriers also have installed their
equipment in different places and vaults
arent always easily reached. Vessels, for
example, can have equipment on the port
side when a terminal has shore-power
equipment on the starboard side of a pier,
which then requires a ship to be turned.
The company will evaluate AMECS
when the time comes, but adopting it would
require a significant change in how the
terminal does business.
Were not sure if we could use both the
barge and cold ironing, he said.
shore power at berth and comply with the
voluntary vessel speed-reduction program
within 40 nautical miles of the port. It also
launched a $5-per-TEU incentive program
for incremental volume that uses on-dock
intermodal rail to reduce costs for ocean
carriers, and truck congestion in container
yards and on city streets.
Cost Comparisons. Cameron cau-
tioned its too early to know how cost ef-
fective AMECS will be, but Garcia said his
technology can save ocean carriers a lot of
money. And when carriers save money their
customers in the retail and manufacturing
sector tend to be better insulated from cost
recovery mechanisms.
The South Coast Airs Atwood would
not disclose how AMECS compared to cold
ironing based on the agencys benefit-cost
methodology because the review is not
The problem with cold ironing is that
people have made huge investments to plug
into power, but the price of power continues
to go up. And so, what happens, our tech-
nology cost goes down because we find
less expensive ways to use it, Garcia said.
Electric utility rates are scheduled to
annually increase 8 to 12 percent, which
means energy costs are likely to double
within seven to nine years, Clay Sandidge,
a partner at Long Beach-based Muni-Fed
Energy Inc., said at the American Associa-
tion of Port Authorities spring conference
in Washington. Ports on the West Coast
typically pay 12 to 16 cents per kilowatt
hour today versus 6 to 8 cents per kilowatt
hour for ports on the East Coast, he said.
Muni-Fed, an energy consulting and
project management firm, is helping Garcia
market AMECS.
We think were one-third the cost of
shore power at todays rates in California,
Sandidge said in an interview. His compari-
son factors in the full cost of shore power,
including capital investments by ports
and carriers, as well as additional labor
for unionized longshoremen to connect
and disconnect vessels from the on-dock
To control costs and maintain the ports
competitiveness, the Port of Long Beach
recently entered into an agreement with
Southern California Edison that offers
terminals preferential rates similar to those
Cold ironing 101
the Port of Los Angeles is getting from that
citys own utility. The deal is expected to
cut electric rates an estimated 15 percent,
saving port users more than $350 million
over 24 year. Annual savings could add up
to hundreds of thousands of dollars for a
single container terminal.
Marine terminals have separate power
lines and meters for the container yard
(cranes, lighting, etc.) and the ship-side
power. Separate billing enables the terminal
to bill back its customers for the power they
used, an official at a Long Beach facility
said on condition of anonymity because he
had not been cleared to speak with the press.
The city of Long Beach previously con-
vinced the California Public Utilities Com-
mission to scale-back certain vessel-related
peak demand charges, saving maritime
operators $85 million per year.
Electric consumption within the port dis-
trict is expected to balloon 500 percent from
50 megawatts in 2010 to 250 megawatts in
2030, according to technical analyses done
for the Long Beach port authority
With cold ironing still in its infancy,
gauging the true cost of electric service is
difficult. Carriers and terminals havent had
enough billing cycles since January to fully
understand the average cost of plug-in power
per port call and many figures cited dont
factor in capital and other costs associated
with shore power. And there are many fac-
tors affecting electric use, from the ships
age, the systems used and the amount of
refrigerated units on board.
Vessels are paying between $5,800 to
$13,000 per call for electric power, depend-
ing on the length of their stay and other
factors, Renee Moilanen, a manager in Long
Beachs Environmental Planning Division,
said in an e-mail.
The electricity bill for plugging in a single
8,000-to-11,000 TEU vessel can average
$7,000 to $10,000, according to Frank Capo,
senior vice president and chief commercial
officer for Total Terminals International,
which operates the 380-acre Pier T facility.
It will probably take a few more months
before terminal operators start seeing the
impact of the new rate structure. Every ter-
minal has its own contract rate, based in part
on its service voltage and usage, which will
be applied within the new structure. Rates
are also structured to decrease as demand
increases, so the more ships plugging into
shore power could bring down the per-call
cost a bit, Moilenan said.
Were still trying to figure out the best
way to bill our customers and the best way
to analyze the data were providing them,
the terminal official said, adding that ne-
gotiations are continuing about what are
reasonable pass-through charges.
Plugging a cruise ship into the grid can
also cause tremendous spikes in demand and
potentially contribute further to brown outs
during peak periods, Garcia said.
A containership draws about 1.5 mega-
watts of power, but big cruise ships can draw
between 10 to 14 megawatts because of all
the onboard systems that must remain at
full capacity to support thousands of pas-
sengers and crew. Refrigerated container
ships also require a bigger load to keep the
cooling units running.
Few seem certain about what happens to
the electric grid if a couple dozen vessels at
the ports of Los Angeles and Long Beach are
hooked up to shore power at the same time.
A 2,500-passenger cruise ship that draws
about 10 megawatts of energy also has a gas
flow of about 35,000 to 50,000 standard
cubic feet per minute, which is about two- to
3.5-times the exhaust flow of a 10,000-TEU
cargo vessel, Sandidge said.
The dock-mounted AMECS is a better
option for cruise and liquid bulk vessels
because it is bigger and can handle the extra
exhaust flow, and those types of vessels
tend to use the same berth each visit com-
pared to containership berths that are more
interchangeable, Garcia said. And the unit
can be made less of an obstacle by setting
it at the back of the terminal and pulling
in the exhaust through ducting run under
the pier, he said.
Liner carriers have little interest in
converting smaller Panamax-size vessels,
which once were the workhorse of the trans-
pacific trade, for cold ironing because the
lifecycle economics dont make sense, an
industry executive familiar with the issue
said on condition of anonymity because
he is not authorized to speak publicly on
the matter. A vessel that only has 10 years
of life remaining would only have a short
period to benefit from shore power, espe-
cially if California is the only place where
it is required. Vessel owners would rather
spread their capital on new ships with a
20- to 30-year lifespan to better amortize
their investment. AMECS could potentially
extend the life of older vessels serving the
California market.
There are no known commercial cargo
terminals elsewhere in the world with ship-
to-shore power infrastructure, according to
Bryan Wood-Thomas, vice president for
environmental policy at the World Ship-
ping Council.
Where you dont have vessels calling
that have fairly high power demand and
call fairly frequently Id say at least six







Longshoremen at Port of Los Angeles prepare electric transmission
cables for hook up.
times a year [cold ironing] tends to be
very cost ineffective because much more
is spent per ton of emissions removed rela-
tive to the fixed costs, said Joseph Hower,
a principle for Environ International Corp.
The global environmental compliance
and risk advisory firm has done studies on
shore power for the ports of San Diego, San
Francisco and Los Angeles, and is closely
involved with ACTI.
East and Gulf coast ports have shied away
from electrifying wharves because they
arent convinced the high implementation
cost will prove economical, Elena Craft,
a health scientist at the Environmental
Defense Fund who is working to improve
the environmental performance of ports,
said. The reluctance stems from concern
that ships calling outside the West Coast
are not equipped to use shore power, that
liquefied natural gas may become a clean-
fuel choice for ocean carriers and a port may
just transfer pollution to a different source if
the electricity comes from a coal-fed power
plant, she said.
But you cant discount the health ben-
efits from the existing shore power elements
that have been in place, she added.
Even if ocean carriers stick with cold
ironing as the primary way to comply with
the California regulations, they still could
benefit from AMECS, Garcia said.
Cold ironing doesnt address the emis-
sions from the boiler, which creates steam
for pump systems on tankers and to keep
bunker fuel warm so it doesnt coagulate.
AMECS could also capture emissions when
ships have to anchor in the harbor and wait
for a berth. And some ocean carriers that
cold iron could opt for the emission con-
trol system to bridge the three-hour gap
allowed by CARB to ready the vessel for
electrical power.
AMECS can come alongside the ship.
It takes us less than 10 minutes to attach to
the stack, Garcia said.
Some container lines that opted to
invest in ship-to-shore power to comply
with the CARB rules are not happy about
the prospect of AMECS being certified
because competitors that chose the equiva-
lent emission-reduction method could
potentially save a good bit of money, the
industry insider said.
If the AMECS system is approved you
have the possibility of hitting your 50 per-
cent reduction with a much smaller capital
investment, he said.
And, the source added, he strongly
suspects the operating cost per visit will
prove to be much cheaper than cold ironing.
However, ocean carrier cost comparisons
of the two alternative emission control sys-
tems must also account for the fact that ships
on shore power dont have to burn thousands
of gallons of marine distillate fuel.
The jury is still out on whether elec-
trification is the best way to improve air
quality for ships at rest, Lee Kindberg,
Maersk Lines director of environment in
North America, said in April during an
EPA summit on air pollution at ports. Shore
power also could prove problematic for ves-
sels that stay for shorter periods because of
the time it takes to plug and unplug a vessel,
and the smaller reduction in emissions as a
percentage of the stay.
Maersk has installed shore-power equip-
ment on 16 larger vessels serving California
ports because for the same investment one
can get greater emission reductions, she
said in an interview.
When Maersk builds new mega-size
vessels, such as the Triple E class, it sets
aside space in the design to install the reels
and cables in the future if the ship begins
to call a port with shore power.
One of the big challenges with shore
power is how you schedule vessel changes
and vessel redeployment, and thats where
theres real potential for an alternative
technology, Kindberg said. So every time
you consider a schedule change you have to
model that change with everything else to
make sure you meet that 50 percent compli-
ance requirement on a total fleet basis.
And you really need to target 60 percent.
You cant shave it that closely, particularly
when dealing with a new technology, she
Some liner carriers, anticipating CARB
verification is imminent, have begun to line
up service contracts.
Garcia said he has ordered four more
barge systems two to service ZIM vessels
in Long Beach and Oakland and two for
other tentative customers and is closing
in on a contract with an undisclosed port
authority to supply several more systems.
The port is going to use our technology
to attract vessels and businesses that wont
cold iron. So the port is saying, well invest
in this technology and supply it. Under the
port model, we negotiate directly with the
port for four systems and it decides who
will use them, Garcia said.
ACTI is currently offering three-year
contracts with service provided on a flat
hourly fee basis. It plans to charge $800
to $1,000 an hour depending on the size
of the scrubber.
Garcia said his next line of business will
be a third-generation AMECS scrubber that
can be sold to ship yards for installation on
new vessels during construction.
Theres all kind of variations of scrub-
bers out there. But some put the particulate
matter back in the water and some arent as
efficient. And most treat only one pollut-
ant. I havent seen any scrubbers that are
mounted in the vessels that scrub more than
one pollutant, Garcia said.
With AMECS we can scrub NOx, SOx,
particulate matter and volatile organic com-
pounds at same time and still be extremely
cost effective, he said.
Some filtration systems, he claimed, only
capture 40 to 50 percent of the harmful
emissions, compared to AMECSs ability
to eliminate 99 percent of the gases and 96
percent of the heavy metals.
What else is on tap for Garcias environ-
mental services company, which also offers
a system for cleaning oil residue from tank
cars and hazardous waste spills?
Im always looking for regulations
coming down the pike that will affect our
customer base in goods movement in petro-
chemicals and see if we can come up with
a better mousetrap, ACTIs founder said.
AMECS probably wont make cold iron-
ing obsolete, Cameron predicted.
I have to believe though that those who
invested in cold-ironing infrastructure are
going to want to maximize their invest-
ment, he said. I really think where this
system will not be so much for the larger
carriers that invested in shore power, but
will be more for small and medium carriers
that maybe dont have the overall revenue
to invest in retrofitting their existing fleet.
That really is the target audience for this
type of technology. The larger companies
may look at it if they need to rotate a vessel
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No matter what.
he demise of the electric trolley
car network that once crisscrossed
Los Angeles is an important and
controversial chapter in the history of public
transportation, even becoming a subplot in
the 1988 movie Who Framed Roger Rabbit.
Now theres a plan to deploy vehicles
powered by overhead catenary wires for
use around Los Angeles County. A one-
year study will examine the feasibility of
using hybrid drayage trucks powered with
overhead wires as they move cargo in and
out of the nations largest port complex.
The South Coast Air Quality Manage-
ment District (SCAQMD) has initiated a
contract with Siemens for $13.5 million
to fund construction of a system of poles
and electrical catenary wire along South
Alameda Street in Carson, Calif., between
East Lomita Boulevard and the Dominguez
Channel, so trucks will be able to drive
along South Alameda in either direction
using the power supplied by overhead wires.
This test track is scheduled for comple-
tion next July, and then a variety of hybrid
drayage trucks will be demonstrated over
a one-year period.
The trucks will attach and draw power
from the catenary wires by driving beneath
them, but use another source of power
an engine powered by diesel fuel, natural
gas or a battery when they drive off the
line to continue their trips without pause.
If the test is successful, the link could be
extended so that trucks traveling the five
miles between the container terminals in
the ports of Los Angeles and Long Beach
and the Union Pacific intermodal container
transfer facility and BNSFs planned South-
ern California International Gateway create
what Siemens called an eHighway.
The California Department of Trans-
portation is looking at expanding the
Interstate-710 freeway north of the port
and SCAQMD wants to include dedicated
lanes for zero-emission trucks. The dem-
onstration project could be a step in that
direction. It has also been suggested the
eHighway might someday be extended
along the highway, CA-60, so trucks head-
ing to warehouses in Ontario or other cities
in the Inland Empire region can travel
much of the way using power from the grid.
Matthias Schlelein, president of Siemens
Mobility and Logistics, said the economic
logic of the eHighway system is very com-
pelling for cities like L.A., where many
trucks travel a concentrated and relatively
short distance. Highly traveled corridors,
such as this, are where we will initially see
eHighway being applied.
In 2011, SCAQMD, the California Air
Resources Board, and Southern California
Association said to meet federal air quality
standards the region will need broad-use
energy sources that have zero or very low
Indeed, the region has looked at a variety
of ways to move freight using the electric
grid, even considering construction of a
magnetic levitation rail system
Erik Neandross, chief executive officer of
Gladstein, Neandross & Associates, which
prepared a study of the catenary system in
2012, said a problem with battery electric
trucks or the maglev system is you are
tethered and thats not the way freight
normally moves.
The way the world works is the trucker
goes to the terminal and picks up a container
and drives it to Carson or to the rail yard
in West Long Beach. Or maybe he has
to go to Riverside or Bakersfield or San
Diego, he said.
He noted battery-powered drayage trucks
have limited range, and besides its huge
capital cost, a maglev system would require
a large amount of container re-handling.
Three hybrid Class 8 drayage trucks are
being built to demonstrate the feasibility
of the eHighway. Volvo, through its Mack
Truck unit, will manufacture the hybrid
From trolley to eHighway
California funds study of hybrid dray trucks powered
by overhead wires to achieve cleaner air.
A one-year study will examine the feasibility of using hybrid drayage
trucks powered with overhead wires as they move cargo in and out of
the ports of Los Angeles and Long Beach.




up highways, and you are not restricting
traffic to only heavy duty trucks because
the catenary wires are 17 feet or so above
the ground. If passenger cars, for example,
want to use the lane, they can, he added.
The economic logic of the
eHighway system is very
compelling for cities like
L.A., where many trucks
travel a concentrated and
relatively short distance.
Highly traveled corridors,
such as this, are where we
will initially see
eHighway being applied.
Matthias Schlelein, president,
Siemens Mobility and Logistics
diesel-electric trucks, while California-
based TransPower will build a hybrid
compressed natural gas-electric truck and
a battery-electric truck equipped with
pantographs to test the eHighway concept.
Siemens has already demonstrated the
viability of the system at a test facility in
Germany, but Patrick Couch of Gladstein,
Neandross said the stretch of roadway in
Carson will provide more real life data. It
will allow us to see what the impact of the
system might be on the grid and hopefully
uncovering things we dont know about that
we should be looking for.
A pantograph on the roof of the cab is
raised when the truck is beneath the cat-
enary wires and lowered when it drives away
from the eHighway, so containerized cargo
can be delivered or picked up at intermodal
yards or warehouses. Sensors on the roof of
the cab can sense when the truck is below
the wires and automatically lowers or raises
the pantograph.
That makes it different from an electric
bus that must run on a fixed route and re-
quires a driver to get out, put on big insulat-
ing gloves and reattach the pantograph to
the catenary wire if it becomes disengaged.
One of the nice features of a catenary
system, Couch said, is that it can be retrofit-
ted to existing systems. Youre not tearing
air pollution control agency for Orange
County and major portions of Los Angeles,
San Bernardino and Riverside counties.
Another $4 million will come from a $50
million settlement fund for air quality
and aesthetic mitigation that was created
in 2003 after environmental groups sued
to block the expansion of the China Ship-
ping terminal in the Port of Los Angeles.
That fund is administered by the Natural
Resources Defense Council.
Couch said an aspect that makes the
eHighway system attractive is that you can
build a zero-emission capability where it
matters. It is not critical that you have zero
emission when you are traveling through an
unpopulated corn field in Tennessee. But
when you are traveling through a dense
urban area you have these greater emis-
sions sensitivities, so you can build this
infrastructure where its really critical to
achieve zero emissions and in that context
youre not really comparing the vehicle
against the diesel vehicle of today, because
the diesel vehicle of today is not going to
give you zero emissions.
We also saw catenary as the lowest
cost option to get zero emissions that you
care about while still maintaining the op-
erational flexibility that drayage operators
and trucking fleets need, he added.
Each of the two Southern California
ports are expected to chip in $2 million
for the project, while $3 million will come
from the California Energy Commission
and $2.5 million from SCAQMD the
Gone missing
his decision involves a shipment of clothing moving
from China to Mexico that went missing along the
way. (U.S. v. C.H. Robinson. Federal Circuit Court of
Appeals. No. 13-1168. July 28.)
A Mexican company, Intercambio Com-
ercial Ekim, imported the wearing apparel
from China via the Port of Los Angeles.
C.H. Robinson (CHR), as the bonded
carrier, was to transport the merchandise
from Los Angeles to L.E. Forwarding &
Freight Broker in Laredo, Texas, for export
to Mexico and hired Marios Transports
Inc. to move the cargo.
There was no dispute that the shipment
left Los Angeles, but whats not clear was
what happened after that.
Transportation in-bond allows imports
to be moved from one U.S. port to another
without being appraised or customs duties
being paid, provided a transportation entry
document is filed and a bond is paid. On
arrival at the destination port, the mer-
chandise may be officially entered into
U.S. commerce and duties and charges
are paid, or the merchandise may be ex-
ported without the duties and charges being
A transportation and exportation (T&E)
entry is the type of in-bond movement
typically used when merchandise is to be
exported at a port other than the port of
entry and the bonded carrier must comply
with certain regulations governing the
receipt, safekeeping, and disposition of
bonded merchandise.
In this instance, the U.S. licensed cus-
toms broker Mario Pea, Inc. stamped the
T&E entry documents at an unmonitored
stamp machine in the lobby of the export
lot of U.S. Customs and Border Protection
at the Port of Laredo.
The court said Pea did not transport
the merchandise to the export lot, nor see,
inspect, or take possession of it. Peas of-
ficial log book showed receipt of the T&E
entry forms, but not a corresponding date
of exportation for each entry.
At the time, Customs used a self-
regulating process in Laredo in which it
did not supervise exportation or require
carriers to report their arrival at the port
the duties, taxes, and fees demanded by
the government.
CHR conceded at trial the pedimentos
were not genuine and could not be verified
by Mexican authorities, and the court said
none of the evidence submitted showed the
merchandise was exported to Mexico. At
most, the evidence demonstrated proof of
delivery of the subject merchandise to the
Port of Laredo.
CHR not only had a responsibility to
deliver the merchandise at the destination
port, but also to ensure that the subject
merchandise was either exported or law-
fully entered into the United States.
On appeal, the Federal Circuit agreed
the bonded carrier may be required to
provide evidence of delivery, even where
the bonded carrier otherwise submits a
properly receipted Customs Form.
There is no statute or regulation that
imposes a burden on Customs to search for
or locate merchandise to establish that it
was not properly delivered, the court said.
Attorney Richard ONeill of Neville
Peterson represented CHR. He said the
decision expands the obligations of a
delivering carrier of T&E bonded mer-
chandise. Such an expansion is contrary
to the statute and regulations, and is not
supported by the explicit language of the
applicable in-bond contracts governing the
movement of merchandise.
That circumstantial evidence of non-
exportation was sufficient evidence to
carry the governments burden of proving
misdelivery should be concerning to all
carriers of in-bond merchandise, he added.
Another attorney wrote a note about the
decision for his clients, Larry Friedman of
Barnes, Richardson & Colburn. He said the
facts presented a fairly unusual situation
but that Customs and the Federal Circuit
applied the meaning of the regulation
pretty literally.
Despite the regulation being pretty
clear, I think this is a bad result. CHR is
left holding the liquidated damages penalty
for actions it did not take, Friedman said.
The decision will likely result in
brokers, forwarders, and carriers recon-
sidering these multi-tiered transactions.
Companies will either not want to involve
other parties or will need the other compa-
nies to agree to indemnify the bond holder
against losses, he said.
Shippers Law l By Chris Dupin
of destination or the exportation of the
merchandise. Instead, it did selective audits
in which it required carriers to demonstrate
disposition of merchandise.
When Customs audited this move, CHR
submitted the stamped T&E entry forms
as proof of exportation, along with three
stamped Mexican importation forms, or
pedimentos, that were provided by Inter-
Mexican Customs told U.S. Customs the
pedimentos were false, and U.S. Customs
issued three notices of liquidated damages
claims against CHRs custodial bond, each
for $25,000, charging CHR with misde-
livery of the subject merchandise. CHR
petitioned for a reduction, and damages
were cut from $75,000 to $57,212.
CHR paid the $57,212 in 2004 and filed
a complaint in the U.S. Court of Federal
Claims seeking a full refund.
The Court of Federal Claims stayed the
action to permit the government to pursue
collection of $106,407.86 for duties, taxes,
and fees.
U.S. Customs said CHR failed to ensure
that the subject merchandise was exported
to Mexico and, consequently, goods sub-
ject to quota/visa restrictions were diverted
into the United States resulting in a loss of
lawful duties.
When the government went to the Court
of International Trade in New York seeking
to recover the $106,407.86, CHR moved to
dismiss the complaint, alleging 19 U.S.C.
1553 did not allow collection of duties.
The court denied the motion, saying sec-
tion 1553 contemplated that U.S. Customs
would promulgate regulations governing
T&E entries and 19 C.F.R. 18.8(c) im-
poses an obligation on the bonded carrier to
pay duties on any missing merchandise.
The government could meet its burden
of showing the merchandise was missing
by casting enough suspicion for the court
to conclude it was not exported.
Following a bench trial, the Court of
International Trade found CHR liable for
Corporate Appointments
874-6422, FAX (904) 791-8836, e-mail
James H. Burnley IV, who served as
secretary of transportation from 1983 to
1987, was appointed to the Eno Center for
Transportations board. He is a partner
with the law firm Venable LLP, where he
concentrates on transportation regulation
and legislation.
Ron Gray was elected chairman of the
U.S. Grains Council. A past chairman of
the Illinois Corn Marketing Board, Gray
has been a delegate from that USGC board
since 2002.
Robert L. Villanueva, president of the
Americas region for Expeditors Inter-
national, will retire at the end of the year.
He is credited with achieving a 15 percent
annual compound growth rate in operating
income during his 15-year tenure, and for
significantly expanding the Seattle-based
forwarders air export business.
Ed Jenkins was named vice president
of market strategy for e-business at CSX
Transportation. Over a nearly 30-year
career at CSX, he has held positions in op-
erations, sales and marketing and strategy.
He was appointed assistant vice president
for market strategy and e-business in 2004.
The Port Authority of New York and New
Jersey elected former New Jersey Attorney
General John Degnan to board chairman.
Degnan was nominated by New Jersey
Gov. Chris Christie and confirmed by the
New Jersey State Senate on July 10. Prior
to his attorney general appointment, De-
gnan served as vice chairman and chief
operating officer of the insurance company
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Georgia takes bite out of cargo crime
pril 15 marked an important date in the secure move-
ment of freight around the U.S. Southeast, yet few if
anyone in the industry knows what changed on this
historic date. On that day, Gov. Nathan
Deal of Georgia signed the Georgia Cargo
Theft Act into law, which took effect July
1. The law specifies punishments based on
the value of stolen freight. It also includes
penalties for tampering with the trucks
used to move that freight. Whats the big
deal you may ask, realizing not everyones
freight moves through Georgia?
To understand the relevancy here, we
need to draw on some history.
When I got involved in transportation
15 years ago there were four primary
areas where cargo theft was occurring:
New York/New Jersey, Miami, Chicago
and Los Angeles. It made sense these
were the top areas for cargo theft as they
have the major ports and an abundance
of imported freight moves through them.
Over time, importers started to recognize
the efficiencies and cost savings of moving
freight through other ports and diversifying
their distribution models. As the freight
transitioned, so did the thieves to cities like
Dallas, Memphis, Atlanta and Savannah.
I could write an in-depth article on what
caused the uptick in cargo thefts, but the
answer is simple: this type of crime is easy
to commit. There are hundreds of thousands
of loads of merchandise in-transit at any
given time throughout the country and the
truth be told, not enough secure places to
control them. Most cargo thefts occur at
night, over weekends when trailers are left
alone an easy target compared to trying
to break into a heavily secured warehouse
or store location.
Six years ago I joined a loosely knit
group comprised of truckers, the insurance
industry and law enforcement, called the
National Cargo Theft Task Force (NCTTF).
The task force had two main goals:
1.) Ensure local cargo theft task forces
were formed and funded so we had true
On Second Thought
With John Tabor
is probation for the offender. One example
is a career cargo criminal from South
Florida who operated out of New Jersey.
This man was arrested nine times for full
trailer-load thefts, but has done less than
two years in prison, and thats the total for
all his offenses.
Lets circle back to Georgia now, earlier
I told you that many of that states metro-
politan areas in recent years have seen a
surge in cargo theft cases. John Cannon of
the Georgia Bureau of Investigations and
his team which is tasked with investigating
these crimes had the opportunity to sit with
State Rep. Geoff Duncan, who took the
time to understand the size and scope of
the problem. Soon thereafter they authored
House Bill 749 and started the process of
testifying in both the House and Senate
about the problem in their state. This bill
has some of the most stringent sentenc-
ing guidelines in the country to date as it
pertains to cargo crime, including:
Mandatory prison of one to 10 years
for stolen property valued between $1,500
and $9,999.
Mandatory prison of five to 20 years
for stolen property valued between $10,000
and $1 million.
Mandatory prison of 10 to 20 years
for stolen property valued at more than
$1 million.
There are also stricter penalties put in
place for thefts of controlled substances,
which obviously put into the wrong hands
could be lethal.
I commend Georgia lawmakers for tak-
ing action on a problem that ultimately af-
fects all the states residents. These changes
in law will go a long way to reduce crime
in Georgia, but the problem is these thieves
will now move their operations to states that
dont penalize at the same high standards.
This law is a great start. However, unless
we have mandatory federal punishment
minimums for cargo theft, we as a shipping
community will fail to achieve a national
reduction in these losses.
Tabor is a 25-year loss prevention expert
and principal of All States Supply Chain, a
supply chain security and logistics consult-
ing firm. He can be reached by email at
skilled investigators with boots on the
ground in areas where thefts were oc-
2.) Launch a public awareness campaign
to show the impact of this crime on the
shipping community.
I can only speak for myself in saying
that I thought the latter would be the
easier of the two goals to achieve, but that
was far from the case. Over the years we
managed to campaign for numerous task
forces nationwide. We also were able to
rally to save some task forces from being
dismantled. The public awareness piece,
however, was extremely frustrating. We
formed a lobbying group and made sev-
eral trips to Washington to meet with our
elected officials from around the country
to enlighten them on the scope of the cargo
theft problem here in the United Sates.
While we were afforded meetings almost
every time, we were forced to meet with
congressional staffers who appeared to be
going through the motions. In fact, the only
member of Congress that I ever met after
two trips was Sen. Patty Murray from the
state of Washington. She, too, was having
a cargo theft problem in her constituency
and truly wanted to better understand the
scope of the problem and find possible
solutions. Unfortunately, our efforts fell
upon deaf ears and no progress was made
at the federal level.
The unanimous opinion in the industry
on a solution to that problem was for stricter
mandatory sentencing guidelines for those
convicted of committing cargo theft. If
someone were to go out today and rob a
bank and take the average $2,000 that is
netted in this type of crime, they would
face at least 10 years in prison. The average
value of a stolen trailer is over $200,000
and the punishment in most of these cases
Supply chain careers, an unfortunate best kept secret
Ask most American high school seniors what they plan to
study in college, and you will likely get answers such as ac-
counting, engineering, education and pre-med, to name a few.
Supply chain management? Probably not even on their radar.
The reason generally is lack of knowledge at that age. Some
young people may have insights into the field through a family
member or friend who works in the industry and has shared
with them some details about the profession. A few may be
fortunate enough to work a summer job involving some form
of supply chain activity, like in a warehouse or retail inven-
tory storeroom. However, to the vast majority of high school
students, supply chain remains a strange concept.
Yet, as reported in this issue of American Shipper (pages
8-10), companies are clamoring for college graduates interested
and, most importantly, capable of becoming future supply
chain leaders. Logistics, according to recent federal govern-
ment statistics, will be one of the fastest growing occupations
through 2020.
So, why is there this disconnect between our nations youth
and this promising field? It appears supply chain careers remain,
unfortunately, a best kept secret. Those of us who are in the
industry know that its more than just about shuttling freight
around a warehouse or to and from truck trailers, but to the
less informed thats still the resounding image.
The field is exciting in that it requires critical thinking and
problem-solving skills and is increasingly international in
scope. Just imagine being responsible for the safe and efficient
movement of millions of dollars of product from point A to
point B for a Fortune 500 company. Yet, as most senior sup-
ply chain managers will admit, they fell into the profession.
Perhaps, the understated nature of the field is now about to
change as the general media steps up its understanding and
more routinely reports on how companies have successfully
boosted their bottom lines through finely executed supply
chains, not just via crafty accounting.
There are also more than 40 colleges and universities in the
United States with supply chain management undergraduate
and graduate degree programs. Many students who matriculate
into these programs have likely done so after exposure to them
within their first year in university, not before. However, as
these institutions showcase this degree option among perspec-
tive students in high schools, knowledge of this burgeoning
field will take off.
Similarly, shippers must do a better job reaching out to the
countrys youth by inviting them to see what they do to keep
global commerce flowing, offer scholarship opportunities and
promote internships once they start pursuing a supply chain
management degree.
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