ISSN 1561-1175HONG KONG SHIPPERS’ COUNCIL

SHIPPERSTODAY JAN-FEB 2008

Vol.31#1

JAN / FEB 2008

CONTENTS

Shippers Today © Copyright 2008

Hong Kong Shippers’ CouncilRoom 2407, Hopwell Centre,

183 Queen’s Road East,Wanchai, Hong Kong

Tel: (852) 2834 0010 Fax: (852)2891 9787shippers@hkshippers.org.hkhttp://www.hkshippers.org.hk

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2008 would be a vigilant year for Hong Kong shippers. The outlook f o r t h e U S m a r k e t i s g l o o m y. Christmas sales were varied among the different retailers, but generally sales concentrated at extreme price ends of products . There i s l i t t le argument that the extended growth the US economy has enjoyed is now over. The debate is whether the US Federal Government could mitigate the property market crisis and prop up the slipping economy.

The European market looks better than the US as it continues to benefit f r o m a s t r o n g E u r o . H o w e v e r , economic growth for EU countries is forecast to fall below 2%. Trade imbalance is expected to aggravate. A n d t h e r e i s a l s o w o r r y o f h o w much Europe could insulate itself from a worsening US economy.

On the cost front, the mainland's new Labour Law and increase of minimum wage are going to push labour costs up by as much as 40%. Energy cos ts are seen to remain h i g h ; t h e y u a n w i l l a p p r e c i a t e further; environmental requirements w i l l b e f u r t h e r t i g h t e n e d ; a n d more items will be grouped under the "restr icted" and "forbidden" categories in the Outward Processing Trade. Hong Kong manufacturers w i l l b e c h a l l e n g e d b y a m u c h h a r s h e r b u s i n e s s e n v i r o n m e n t . Indeed, there is a clear need for the Central Government to reduce the

surging trade surplus.

A d d e d t o t h e l o n g l i s t o f n e w challenges this year is how shippers could safeguard their own interests in a chaotic logistics market. Partly, the uncer ta in t ies a re a resu l t o f the anti-trust activities of foreign regula tory author i t ies . The EU Competition Committee abolished shipping conferences ' ant i - t rust i m m u n i t y i n S e p t e m b e r 2 0 0 6 , b u t i t s i m p a c t w i l l b e f e l t t h i s October when liner conferences and discussion groups must officially disband. After the two-year grace period, shipping conferences like the Far Eastern Freight Conference ( F E F C ) t h a t f i x r a t e s a n d s e t standard tariffs, will cease to exist.

While awaiting a decision of whether shipping lines should be allowed t o c o n v e n e a n d d i s c u s s m a r k e t supply and demand after October,

Staying vigilant in 2008

Chairman

MrWillyLin

Vice Chairman

TheHon.JeffreyLam

Members

MrClementChen

MrRoyChung

MrH.Y.Hung

MrMatthewLai

MrKelvinLeung

MrSimonLum

MsKatherineNgan

MrVKParekh

MrYKitSzeto

MrCliffSun

MrAlanWong

MrPeterWong

MrYeungChunFan

Executive Director

MrSunnyHo

2007-2008

as proposed by the European Liner Affairs Association (established May 2003) , sh ippers worry tha t sh ipp ing l ines wou ld in t roduce n e w c h a r g e s o r a d j u s t c h a r g e levels without any restrictions or obligation in the post-conference period. To European shippers, this might not be a big concern since fierce competition among shipping lines mean very competitive terms for them. However, Asian shippers fear that while shipping lines are heavily discounting to the European s h i p p e r s , t h e l i n e s w o u l d s e e k revenue compensation elsewhre, i.e. from Asian shippers through layers of local charges.

A n d t h e r e i s r o o m f o r t h e m t o e x p l o i t A s i a n s h i p p e r s . A s i a n exporters are obliged to ship with the nomina ted l ines under FOB terms and overseas buyers insist on purchasing in FOB terms because then, they could make use of their l a rge g loba l f r e igh t vo lumes to negotiate better terms with shipping lines. Meanwhile, on the other end, Asian shippers have to contend with the burden of Terminal Handling Charges along with many other local charges.

The same situation extends to the air freight market as well. Regulatory authorities from Europe, the US and with cooperation with those from Asia, have raided offices of major airlines as part of their investigation into airlines' collective pricing over surcharges and alleged price-fixing on cargo operations. From European med ia r epo r t s , BA, A i r F rance , KLM, SAS, Lufthansa and Cargolux were visited in February 2006, and some reports said Japan Airlines, Cathay Pacific, Singapore Airlines, LAN, Polar Air cargo, Korean Air,

Asiana and ANA also came under scrutiny. Requests for information were said to have been received from both the EC and the US Dept of Justice (DOJ).

S u b s e q u e n t l y, B r i t i s h A i r w a y s r e p o r t e d l y p a i d u p t o U S $ 7 0 0 m i l l i o n t o t h e D O J f o r b o t h passenger and cargo fuel surcharge sett ing. Other air l ines were also reported to have 'settled' sums for transgressions in discussing and setting fuel surcharges.

Last year, anti-trust regulators once again went scouting for law breakers a n d s e a r c h e d s e v e r a l m a j o r a i r cargo freight forwarders' offices, in an extension of the airlines' probe. EGL, Kuehne+Nagel, Expeditors, P a n a l p i n a a n d S c h e n k e r w e r e reported in the media to have been targetted by the investigations.

As a consequence, the local Hong K o n g A s s o c i a t i o n o f F r e i g h t Forward ing and Log i s t i c s L td . , HAFFA, has stopped publishing its Ancillary Charges Guideline since October 2007. The guideline is simply that: a reference list of ancilliary charges which have been put together among HAFFA and the Counci l . Although not binding, the guideline serves as a reference for the market and provides caps on local charges. Though not regulatory in nature, the guideline serves as a sticking point if and when unscrupulous service providers t ry to levy outrageous charges against shippers.

T h e C o u n c i l c o n s i d e r s t h a t improvement in the transparency o f cha rges would be a b ig he lp . Shipping lines, airlines and freight forwarders should be required to publish their full tariffs that list out

all and every single itemised cost. They should be required to charge in accordance with their tariffs and any violation should be punished. To f a c i l i t a t e t h i s r e q u i r e m e n t , a l i cens ing sys tem shou ld be in place for shipping lines, airlines, and freight forwarders/ logis t ics companies. Indeed, the Council has been urging the SAR Government to establish such a licensing system for improvement of tariff transparency, and protection of shippers against carriers' misdeeds such as wrongful r e l ease o f ca rgo a t des t ina t ion , ca rgo loss and damage , e t c . A t present, protection to shippers is far insufficient. Shippers are entrusting millions worth of cargo to freight forwarders who need only a normal Business Registration to operate. There are many cases that freight forwarders just close their offices to evade liabilities and are free to just set up another company with a new name and con t inue do ing the same type of business. These freight forwarders tend to offer very favorable terms to their overseas agents in order to secure business and the Hong Kong shipper would h a v e t o s h i p w i t h t h e m u n d e r nomination.

T h e C o u n c i l i s e x p l o r i n g t h e feasibility of continuing to publish a guideline of ancilliary charges to replace that of HAFFA's. In doing so, we hope to establish a market reference and hope to remind all s h i p p e r s t h a t b e f o r e s h i p m e n t , i t i s i m p o r t a n t t o a s k f o r a f u l l quotation that lists out all charges–at origin, freight, and at destination. Shippers should pay attention also to all other terms and conditions to ensure that there would be no unexpected charges, a fact of life in an unregulated market environment.

CHAIRMAN’S MESSAGE

4 Shippers Today

Richard Chan has been in

the shipping industry and in transport

liability insurance for

more than 20 years,

out of which he worked for a leading shipping company, a P&I Club and

a transport liability mutual Club and also insurance brokers. Throughout

these years, he has been handling transport related claims and giving

loss prevention and transport contract advice. He is now Director and co-

founder of Sun Mobility Insurance and Claims Services Ltd. which specialises in transport liability claims, loss prevention

and contract advice. Richard has been very active in the transport and

transport liability insurance industries, and has been in much demand in

giving seminars organised by insurance organisations. He graduated from Hong

Kong Polytechnic with a Prefessional Diploma in Business Studies Transport in 1984, and obtained the qualification of MCIT and ACIArb. in 1987 and 2000 respectively. He holds an MBA degree

awarded by University of East Asia.Email: richardchan@sun-mobility.com

Simon Chan is Director

and co-founder of

Sun Mobility Insurance

and Claims Services Ltd. He

deals in transport liability insurance brokerage plus provision of unique

transport risk management services. He has extensive risk assessment, marketing and sales experience in

marine insurance products in Greater China. Simon is a highly experienced

marine, multi-modal and logistics risks manager in Asia Pacific. Before

becoming a transport risk manager, he had extensive operational experience in the transport industry. He assumed

managerial roles in airlines and container shipping companies. Simon

received a B.A., （Hons（ degree from the University of Hong Kong and attended the Institute of Chartered Secretaries

& Administrators . He was awarded a Master of Business Administration

in Finance and E-commerce by the Hong Kong University of Science and

Technology. Email: simonchan@sun-mobility.com

CHANS’ ADVICE

We previously wrote that the Hong Kong Court of Appeal on 13 July 2007 he ld the forwarders l i ab le to pay the seller for US$873,028 plus interest and costs in the cargo m i s d e l i v e r y c l a i m . O n 6 N o v 2007, the Court of Appeal issued a further short Judgment dealing with two points: (i) interest and (ii) the forwarders' application for leave to appeal to the Court of Final Appeal.

Interest

In the judgment handed down on 13/7/2007, damages in the sum of US$873,028 were awarded in the sel ler 's favour. These damages, un l iqu ida t ed in na tu re , were in respect of the misdelivery that took place when the seller's goods were handed to the buyer wi thout the production of the bills of lading.

In a con t r ac tua l c l a im , i n t e r e s t usually runs from the date of breach (the date when the cause of action accrued) but the courts are of course entitled, in the exercise of the broad d i s c r e t i o n t h e y h a v e r e g a r d i n g interest, to use a date which may be more appropriate, for example, where the loss does not immediately arise: see McGregor on Damages (17th Edition) at paragraph 15-065 to 15-066. In the present case, the cause of action (both the breach of contract and conversion) accrued at the time when the misdelivery took place (which was the time that the seller sustained its loss when it lost the relevant goods). Although there

was no precise date for this, it was clear from the judgment of Stone J in the court below that this was no later than 22 April 2003. The Court of Appeal was content to use this date.

As for the rate of interest, the Court of Appeal saw no reason to depart from what is the usual: 1% above pr ime . Al though the se l l e r had contended for a higher rate, there was very little, if any, evidence to justify this.

Accordingly, there would be interest at the rate of 1% above prime rate for the period from 22 April 2003 to 13 July 2007 (the date when the judgment of the Court of Appeal was handed down) and thereafter a t judgment ra te unt i l payment . "Prime rate" means the prime rate of lending of the Hong Kong and Shanghai Banking Corporation from t ime to t ime during the re levant period.

Appl icat ion for l eave to the Court of Final Appeal

The damages awarded against the forwarders being in the nature of unliquidated damages, there is no appeal as of r ight under sec t ion 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance, Cap.484.

As for the application under section 2 2 ( 1 ) ( b ) o f t h e O r d i n a n c e , t h e fo rwarders had advanced seven grounds said to be points of great

HVR cover cargo delivery (III)

� Shippers Today

Simon Chan Richard ChanDirector DirectorE-mail: simonchan@sun-mobility.com E-mail: richardchan@sun-mobility.com10/F., United Centre, Admiralty, Hong Kong.

Tel: 2299 5566 Fax: 2866 7096

E-mail: gm@sun-mobility.com Website: www.sun-mobility.com

CIB A MEMBER OF THE HONG KONG CONFEDERATION OF INSURANCE BROKERS

Multi-modal transportation involves far more complicated liability regime than port-to-port or airport-to-airport carriage. Pure international sea or air transport often affords better protection by international conventions. Conversely, multi-modal transport entails a variety of operational risk elements on top when the cargo is in- transit warehouse and during overland delivery. Fortunately, these risks are controllable but not without deliberate efforts. Sun-Mobility is the popular risk managers of many multi-modal operators providing professional assistance in liability insurance, contract advice, claims handling, and as a matter of fact risk consultant for their staff around-the-clock.

general or public importance.

The Court of Appeal refused leave u n d e r s e c t i o n 2 2 ( 1 ) ( b ) o f t h e Ordinance. The Court of Appeal referred to the Grounds of Appeal s e t o u t i n t h e N o t i c e o f M o t i o n taken out by the forwarders:

(1) The first two grounds related to the argument on the differences between s traight and negot iable bil ls of lading. While the Court of Appeal accepted that th is did i n v o l v e a n a r e a o f l a w t h a t i s important, the Court of Appeal did not see that the contentions raised by the forwarders were reasonably arguable for the reasons gone into in the judgment given by the Court of Appeal on 13 July 2007.

( 2 ) T h e n e x t t h r e e g r o u n d s related to the construction of the particular bills of lading that had t o b e c o n s i d e r e d i n t h e c a s e i n question. The Court of Appeal saw no points of great general or public i m p o r t a n c e t h e r e : t h e o u t c o m e depended on the particular language used in the terms themselves. It seemed at the end of the day that the forwarders were simply contending that the Court had construed the terms too strictly.

(3 ) The f ina l two g rounds dea l t with the forwarders' counterclaim relating to freight. This claim was resolved on the facts. The Court o f A p p e a l r e p e a t e d p a r a g r a p h s 134-144 of its Judgment of 13 July 2007. The forwarders advanced a number of points based on pleading practice and set off but, in the Court of Appeal's view, no points of great general or public importance arose there.

The forwarders finally relied on the "or otherwise" ground in section 2 2 ( 1 ) ( b ) o f t h e O r d i n a n c e . B u t exceptional circumstances have to

b e s h o w n : s e e C h a o K e h L u n g v D o n X i a ( 2 0 0 4 ) 7 H K C FA R 260. None existed in the case in question.

For the above reasons, the Court of Appeal dismissed the forwarders' application for leave to appeal to the Court of Final Appeal.

CHANS’ ADVICE

7Shippers Today

Once again, I am asked to forecast what the future holds for logistics in Hong Kong. I do not have a crystal ball, but I do not need a crystal ball to foresee that Hong Kong logistics will continue to face many challenges. Having said that, I am glad to say that Hong Kong logistics appears to be holding its ground. Although the growth rates have somewhat fallen, our container throughput in terms of absolute numbers remains good, and air cargo remains strong.

Although Hong Kong is no longer the busiest container port in the world, container throughput handled by our port in 2006 recorded 23.5 million TEUs, which is 4.1% higher than 2005. This means that although we are still beating our own record year after year, other ports have grown much faster than us. For 2007, the prediction is that we may still hold our ground, and perhaps even achieve a miniscule growth of 1-2%. In the area of air cargo, my prediction for 2006 was 6%. The year ended with a growth rate of 5.2%, which in terms of absolute numbers was a phenomenal volume of 3.6 million tons - the envy of the world. We still remain the leading airport in terms of international air cargo. For 2007, although air cargo throughput was somewhat sluggish during the first few months, this picked up in the second half of the year. The prediction is that for the whole year, we may be able to achieve a growth rate of around 4%.

Hong Kong holds its ground in logistics

By The Hon. Miriam Lau Kin Yee, Legco member for the Transport Functional Constituency

8 Shippers Today

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9Shippers Today

It must be mentioned that although the total number of containers moving through Hong Kong has not fallen, the composition of container traffic has shifted over the past few years. Ocean freight is not growing, and may even be falling slightly, while transshipment cargo has surged and the growth of river trade appears to be tapering off. This change is worth noting as it affects the strategies that Hong Kong should adopt to face future challenges.

Despite much effort over the past few years to narrow the price differential for cargo handling between Hong Kong and the Shenzhen ports, we have not been able to make further reduction beyond the existing differential of around US$260 per container. Fuel cost remains a nightmare as international fuel pr ices cont inue to escala te . Although DTTN (Digital Trade and Transportation Network) is in place and OBTIS (On-Board Trucker Information System) is proceeding into the proof of concept stage, more time is needed by the industry to catch up with electronics l o g i s t i c s . C o m p o u n d i n g t h e s e difficulties is the fact that Guangdong's export trade may slow down as more factories move further inland as a result of recent regulatory controls targeting labour-intensive and polluting industries in Guangdong. As Hong Kong's cargo is mainly sourced from South China, reduction of Guangdong's exports will most certainly adversely impact Hong Kong. Our share of the pie, which is not really growing, may be further reduced.

As many factories in the Pearl River Delta are expected to move westward,

whether for costs reasons or to avoid regulatory controls by the Mainland authorities, the need for the Hong Kong-Zhuhai-Macau Bridge becomes imminent. This Bridge brings Hong Kong and the Western PRD within a 30-minutes radius and is vital if Hong Kong is to capture the cargo from this source. The Chief Executive has in his policy address included this Bridge as one of the ten major infrastructural projects committed by the Government. We really need to push ahead with this project.

Whils t enhancement of logis t ics infrastructure is important, that alone is not enough. Neither can we afford to sit back and wait. The stiff competition that Hong Kong already faces can only intensify in the years ahead. For years I have been calling on the Government to assist the industry to breakthrough into value-adding and other areas of excellence. Some progress is made in the development of electronic logistics, though it may be a while before we are able to reap the benefits. Progress is however slow in the provision of land which is almost a pre-requisite for the development of value-added logistics.

Many logistics operators have already m o v e d t o t h e M a i n l a n d s i m p l y because they have not been able to find suitable places for operation in Hong Kong. The Logistics Park which

we have been talking about for many years, and which the Government said back in 2002 that it will build, is still going through a feasibility study. Worse still, it seems to have suddenly d i s a p p e a r e d f r o m t h e r a d a r o f Government's infrastructural projects, as it is not even included in the current Chief Executive's infrastructural development program.

Many industry players have reflected to me their concern about the lack of logistics land for further development of the industry. This insufficiency of land is also hampering the growth of t ransshipment cargo which is developing rapidly and which offers a buffer to the decline or sluggish growth of ocean freight. The logistics industry does not have the luxury of time. If Hong Kong seeks to retain i t s compet i t ive edge in the f ie ld of logistics, it is high time that the Government seriously focus on the genuine needs of the industry and perform its job as facilitator. I reiterate my call to the Government for action to be taken.

LOGISTICS

10 Shippers Today

In 2008, the global economy, albeit remaining fairly decent, will witness the continued transition of advanced economies to a slower lane of growth. In the US, growth is expected to decelerate markedly, because of further housing corrections and the sub-prime fallout. This US slowdown will likely constrain growth in the EU and Japan, although the expansion of both economies should remain relatively strong by their own standards, and a steady demand from the EU and, to a lesser extent from Japan, will provide some buffer against the uninspiring demand from the US. At any rate, consumption in both Europe and Japan

will be largely tepid, despite helpful currency movements. Oil prices are a wildcard. Stubbornly high crude prices may not only drag consumption, but also stir up inflationary pressures, making it difficult to adopt a relaxed monetary stance if needed.

Hong Kong exports will be further affected by potential protectionism in traditional markets. Especially in the US, it is widely held that protectionism would intensify amid the presidential elections in 2008. Calls for a tougher stance against the mainland have already grown, and the US government has taken a number of policy actions

accordingly. Across the Atlantic, the EU will probably exert a tougher stance on trade issues with the mainland, bringing its position more in line with the US. While the initiation of anti-dumping actions against mainland products has subsided for some time, new investigations are expected to gain momentum, and rigorous use of other trade defense measures cannot be ruled out. On both sides of the Atlantic, recalls of mainland-origin products, especially toys, pose another challenge for Hong Kong exporters.

Mainland as a cushion against world moderation

For Hong Kong exporters, a more cheerful development is expected to be the sustained growth of developing economies. In particular, developing A s i a , p o w e r e d b y t h e C h i n e s e mainland, will continue to be the most vibrant region on the global economic scene. To some extent, sustained intra-regional trade, primarily driven by continued demand from the Chinese mainland, should be able to cushion some of the negative impact engendered by the slowing world economy in general and a dwindling US demand in par t icular. Sound economic fundamentals, including solid external positions, large exchange reserves and high domestic savings, should indeed help the region weather the global slowdown, whereas stronger currencies should mitigate the negative consequences of high crude prices.

Evidently, Hong Kong is set to further

Hong Kong's Export Outlook for 2008:

Maintaining Competitiveness through Supply Chain Management

Mr. Alan WongDeputy Director, Hong Kong Trade Development Council

Mr. Alan Wong was born in Northern China. His family moved to Guangzhou soon afterwards and later the family settled in Hong Kong.

After attending high school in Hong Kong, Mr. Wong went to Canada for his tertiary education, he graduated

from the University of Alberta with a degree of Bachelor of Science.

After working briefly in the private and public sectors, Mr. Wong started his long career with the Hong Kong Trade Development Council. He moved up the ranks from Market Officer to his present position as Deputy Executive Director. He has extensive experience working both in Hong Kong and overseas which included postings to Los Angeles, Chicago, Dallas, New York, Panama, Paris, London, etc.

His present responsibilities include overseeing the Council's network of overseas representation and formulating the Council's promotional strategies.

Mr. Wong is married with two daughters.

LOGISTICS

benefit from the sustained expansion in intra-regional trade, especially sales to the mainland, where economic growth will remain at a double-digit rate in 2008, despite further policy curbs in response to signs of overheating. Notwithstanding successive interest rate rises and a reduction in the tax on deposit interest, retail sales were up 15.9% in the first three quarters of 2007, vis-à-vis 13.7% in 2006. Consumption growth is expected to stay strong next year, as the prevailing positive wealth effect deriving from rising wages and the stock market should remain largely in place, while the government also seeks to rely more on consumer spending, rather than investment and exports, as the driver of economic growth.

On the ex te rna l f ron t , main land exports will moderate somewhat, as fore ign demand, not leas t US demand, is forecast to slow. In all likelihood, however, such impact will not be substantial. According to the World Bank, if US consumption contracts by the equivalent of 1% of GDP, China's economic growth is estimated to be lowered only by 0.2-0.5 percentage point. Indeed, China, the world's third largest exporter in 2006, has overtaken the US as the second largest since the beginning of 2007, and is expected to surpass Germany as the largest in the near future. Hong Kong should therefore further benefit from the mainland's healthy appetite for materials and semi-manufactures for export production. In addition, the mainland's continued

industrial upgrade will generate huge opportunities for Hong Kong as a technology marketplace, especially for machinery and equipment for advanced production and green manufacturing.

C h a l l e n g i n g p r o d u c t i o n environment

An unceas ing demand f rom the mainland will surely bring glad tidings. But changes in process ing t rade policies will pose a challenge for Hong Kong exporters and manufacturers. Now that promoting the transformation and upgrade of the processing trade and restricting the development of high energy-consumption, heavily polluting and resource-intensive industries are the mainland's long-term development objectives, it will continue to make adjustments to processing trade polices. Such policy changes, covering VAT rebate adjustment, expansion of the restricted/prohibited category and access threshold for processing trade enterprises, could have significant impact on Hong Kong manufacturers, perhaps in terms of mode of operations, use of technologies, sources of raw materials, manufacturing localities as well as production costs.

However, rising labour costs present the greatest challenge to Hong Kong manufacturers. In the PRD, labour costs that comprise wages, social securi ty contr ibut ions and other welfare benefits have increased by some 25% over the past two years, while the new Labour Contract Law, which will come into effect from

January 2008, may have additional cost implications. Meanwhile, the RMB exchange rate has been appreciating. It is estimated that a 10% appreciation of the RMB would translate into a 2-4.5% rise in production costs. So if labour costs account for 15-30% of the total production costs, just the rise in wages and RMB appreciation in the past two years alone has already resulted in an estimated increase of 6-12% in the total production costs. To compound problems, the recent product recalls, dominated by toys, will also increase safety compliance costs, whereas soaring commodity prices will jack up input costs, especially for precious metals and stones, as well as plastic raw materials due to high oil prices.

Likely performance of selected Hong Kong exports

Given a stable demand due mainly to the continued popularity of digital products in overseas markets and sus t a ined demand fo r pa r t s and components f rom the main land , Hong Kong's electronics exports, which account for over half of Hong Kong's total overseas sales, will stay as the growth leader. For clothing, a continued shift in US and EU orders from other production bases back to Hong Kong and the mainland, amid low levels of US quota utilisation and the removal of EU textile quotas next year, should partly offset the moderation in foreign demand. For toys, sales will be clouded by the recent recalls, although the impact should not be substantial, given Hong

Hong Kong's Export Outlook for 2008:

Maintaining Competitiveness through Supply Chain Managementby Alan Wong, Deputy Director,

Hong Kong Trade Development Council

11Shippers Today

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12 Shippers Today

Kong's ability in safety compliance. As regards jewellery, sales in value terms will be particularly inflated by lofty raw material costs, while exports of watches and clocks are expected to be steady, with higher priced timepieces likely to perform better.

Supply Chain Management: Tenet for exporters and manufacturers

H o n g K o n g e x p o r t e r s a n d manufacturers must take note of the likely developments not only in the global market environment, but also the production environment on the mainland. In view of changing processing trade policies and rising production costs, they should strive to better manage their supply chains in order to maintain their competitiveness. First , to cope with the expanding range of prohibited commodities of the processing trade, enterprises processing with supplied materials should consider converting to foreign invested enterpr ises . Second, to avoid high labour costs in the PRD, Hong Kong companies could shift part of their manufacturing activities beyond the PRD and further into other provinces. They could even consider maintaining a diversified production base rather than just concentrating on the mainland, not least setting up a

presence in emerging production bases like Vietnam and Cambodia.

M o r e i m p o r t a n t l y, t h e y s h o u l d upgrade thei r product s t ructure , and shift from simple processing and assembly to high value-added activities and high technology sectors. This move might involve a wide spectrum of act ivi t ies , probably including developing own designs and brands, introducing innovative and high-tech products, adopting new mater ials and technologies , embarking on automated production, implementing a green manufacturing s y s t e m , t i g h t e n i n g f i n a n c i a l control , strengthening inventory management, as well as enhancing logistic arrangements. Prompted by the urgency of transformation and upgrade, alongside the substantial adverse effect of rising production cos ts , Hong Kong expor ters and manufacturers should no longer adopt a wait-and-see attitude, and be ready to step out of their comfort zone to avoid being crowed out.

On the market front, as protectionism i s l i k e l y t o i n t e n s i f y , w h i l e consciousness on environmental protection and product safety will become more popular, what Hong K o n g e x p o r t e r s s h o u l d d o i s t o k e e p a c l o s e e y e o n r e g u l a t o r y d e v e l o p m e n t s a n d r e s p o n d accordingly, covering quotas and anti-dumping/countervailing actions on the one hand, and environmental laws and related green manufacturing requirements, plus product safety measures and standards, on the other hand . Given the l imi ted g rowth prospects of traditional markets, Hong Kong exporters are further advised to look for other fledgling markets, spanning from Southeast Asia, South Asia and the Middle East to Central and Eastern Europe and Latin America, particularly the oil and commodity-rich countries,

and economies more insulated from the global slowdown. But despite abundant emerging opportunities, obvious pitfalls await the unwary. Hong Kong expor te rs should be prepared for, among others, market vo la t i l i t y, r ed t ape , i nadequa te infrastructure, retail fragmentation and affordability problems in the emerging world.

Development of Hong Kong's services exports

Consistent with the moderating growth expected in merchandise exports, the growth in services exports should slow a tad in 2008. Although the trade prospects for the Greater PRD region next year should remain promising on the whole, direct shipment or cargo diversion will continue to take its toll on Hong Kong's transportation service receipts. The healthy state of inbound tourism expected for next year, which would help the passenger of transportation service exports, may not offer too much of an offset in light of the sector's downtrend in growth over the past four years. Although cargo diversion would negatively impact transportation receipts, Hong Kong still derives very substantial income from the export of trade-related services, which are primarily offshore trade transactions, that should hold up well next year.

Cargo diversion notwithstanding, the increased transhipment of PRD cargo by barge to Kwai Chung has become a brighter spot in the activities of Hong Kong Port lately. For its part, the Hong Kong government has recently tendered out a waterfront plot of four hectares off Container Terminal 7 for improving barging operations. Apart from measures to improve efficiency and reduce the cost of cross-boundary t ruck ing , Guangdong and Hong Kong are also discussing the need for additional boundary crossing points to

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13Shippers Today

enhance land connectivity between the two places. Nevertheless, Hong Kong's seacargo sector is facing intensifying challenges from neighbouring ports in Southern China, which are fast catching up in terms of the number of shipping lines, overseas destinations, efficiency and capacity. The first two berths of Dachan Bay will come into operation by the end of this year, with port expansion projects in Yantian and Shekou steaming ahead.

In comparison with seafreight, Hong Kong's airfreight sector should perform somewhat better in 2008. Against the background of the continued relocation of electronics production capacity to Asia, now an increasingly integrated production region, airfreight prospects next year should be helped by higher electronics-related sales and sustained intra-regional trade. On the other hand, to reinforce Hong Kong's position as an international and regional aviation hub, progressive steps have been taken to expand Hong Kong's air transport network and capacity. Hong Kong International Airport (HKIA) is now working on an enhancement project to increase the capacity of the existing runways, while carrying out a feasibility study of adding a third runway. The Airport Authority has also decided to consult cargo facility operators regarding the need for establishing Hong Kong's third aircargo terminal.

The performance of Hong Kong's travel and tourist sector looks promising next year, thanks to the US dollar's substantial cumulative depreciation against major currencies, which raises the purchasing power in Hong Kong of tourists from many long-haul markets. Hong Kong's themed promotion of its being a host city of the Olympics Games, expansion of the individual travel scheme for mainland visitors to cover currently 49 cities (including all provincial capitals of Pan-PRD), plus

a strengthening RMB, should attract more mainland tourists to the city.

Financial services, which constitute about 10% of Hong Kong 's to ta l services exports, have grown annually at around 30% for the past couple of years. While the mega-sized IPOs seen in 2006 in Hong Kong were not repeated this year, listings of mainland enterprises of reasonably large size will remain frequent next year. In addition to a significant number of IPOs related to mainland enterprises, listing hopefuls from other places can also be expected in 2008, with the Hong Kong bourse starting to reap the fruit of its active promotion of Hong Kong's listing platform in many emerging markets.

• Given a US-led global slowdown and rising overseas protectionism, Hong Kong's total merchandise exports are projected to expand by 7% in 2008, with electronics remaining the growth leader.

• Led by the Chinese mainland, the dynamic growth of developing Asia will largely remain unscathed from the global slowdown. Intra-regional trade, especially demand from the mainland, will provide the main stimulus to Hong Kong exports.

• However, changes in processing trade policies on the mainland, along with surging production and raw material costs, will pose big challenges for Hong Kong exporters and manufacturers.

• In response, they should strive to better manage their supply chains to maintain their competitiveness, not least shifting from simple processing and assembly to high value-added activities and high technology sectors.

• They are also advised to monitor regulatory developments in overseas markets, covering environmental laws and safety measures too, and diversify into selected emerging markets, especially oil exporters and countries with sustainable domestic demand.

• Services exports should moderate slightly in tandem with the slower growth of merchandise exports, though the prospect of exporting trade-related services and travel services should stay largely constructive.

• While the mega-sized IPOs seen in 2006 in Hong Kong are not repeated this year, listing of mainland enterprises of reasonably large size will remain frequent next year.

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14 Shippers Today

In 2007 , we ce lebra ted the 10 th anniversary of the establishment of the SAR and our reunification with the motherland. It was a memorable year in many aspects. The value of total exports of Hong Kong reached a record high at HK$2,212 billion in the first 10 months of 2007, registering an increase of 9.4% compared to the same period in the previous year, thanks to the hard work of Hong Kong manufacturers and exporters.

Looking ahead to 2008, the global picture looks promising although the pace of economic expansion may be slightly slower than in 2007 owing to the envisaged sub-par growth in the United States, one of Hong Kong's major markets. Despite the uncertainties stemming from the US economy, there are positive developments in other parts of the world, including the thriving mainland Chinese economy, continued expansion in Europe

Helping Hong Kong exporters grasp emerging opportunities

by Mr. Tom Tang, JP Chairman of The Hong Kong Exporters' Association

and Japan, and solid growth in most parts of Asia and Eastern Europe.

Although the outlook is favourable, we must be attentive to the looming challenges arising from both our production and market sides. In particular, Hong Kong manufacturers are facing a major crisis with the sudden changes in the processing trade policy by China's Central Government, such as banning the import of certain key raw materials and implementation of deposit for certain imported materials. Meanwhile, the recent massive recall of toys and other products that were made in China have hit badly some of those in the international export business.

These are the challenges that we must squarely address to ensure Hong Kong exporters' sustainable development. It is about time for us manufacturers and exporters to review our production

Mr. Tom C. Y. TANG, JPChairman, The Hong Kong Exporters' Association

Elected Chairman of The Hong Kong Exporters' Association in 2005, Mr. Tom Tang has been an active member of the General Committee since 1996. He served as a Vice Chai rman of the Association from 1999 to 2004. Mr. Tang is the

Managing Director of Meadville Holdings Ltd, a group that manufactures printed circuit boards and copper clad laminates in Hong Kong and China under the name of Oriental Printed Circuits Ltd, Mica-AVA (Far East) Industrial Ltd, Dongguan Shengyi Electronics Ltd, Dongguan Meadville Circuits Ltd, Shanghai Meadville Electronics Ltd, Shanghai Meadville Science & Technology Co Ltd. Majority of the products are exported to USA, Europe, Japan, Singapore, Malaysia, Philippines, Thailand, Vietnam and China.

Mr. Tang serves on the Electronics and Electrical Appliances Advisory Committee of Hong Kong Trade Development Council, Board of Directors of The Hong Kong Standards and Testing Centre, Board Member of Hong Kong Safety Institute, Chairman of the Electronics and Telecommunications Training Board of Vocational Training Council, Board of Directors of Hong Kong Applied Science & Technology Research Institute Co. Ltd. and Honorary Chairman of Hong Kong Printed Circuit Association.

processes and our market position. We must look at ways to to enhance our competitiveness amid the changing manufacturing environment in China and the international market place.

If we want to compete globally and maintain our viable production activities in the Mainland, then we must move onward and upward the value chain. Manufacturers can no longer focus on low-cost production of low-value products. We have to re-orient ourselves in order to meet the changing needs of our markets. While we can no longer compete on cost advantage, we should instead add more value to our goods and services; we should upgrade our products, facilities and production technologies; and, we should develop new markets. After all, our competitive edge is built on our innovativeness and cutting-edge design capability, as well as our high quality products.

The overall export business of Hong Kong is not dismal, if manufacturers react proactively to the challenges. Although the weakness of the US market, being dragged down by its housing market downturn and sub-prime mortgage problems, will be the main downside factor in the period ahead, there are positive developments in other parts of the world. The robust Mainland market is expected to be the main driving force of Hong Kong exports, and many other emerging markets in Asia, the Middle East, Eastern Europe as well as in Southern America remain fairly strong. These markets will help offset the softness of the US market.

The Hong Kong Exporters' Association will continue to work hard to form the best export business environment, not just in Asia but the world, to help Hong Kong exporters grasp significant and emerging opportunities.

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1� Shippers Today

Servicing the export platform of Asiaby Peter Landsiedel, Chief Executvie Officer,

DHL Global Forwarding – Asia Pacific

China is the fastest growing trading nation and the world's third largest trading economy, behind the European Union and the United States. At the end of 2006, its international trade exceeded USD 1.758 trillion. The value of China's exports continues to augment at more than 25 per cent a year.

China is no longer merely a phenomenal exporter of low-cost manufactured products to North America and Europe. Research indicates that China is also performing the role of a sophisticated 'export platform' for the Asia-Pacific region.1

Large scale international trading, global export/import processes, cross-border repositioning of raw materials/products and manufacturing would be impossible without professional logistical support. Therefore, China's changing role in the export landscape of the Asia-Pacific, particularly its emerging role as the region's export platform, would require logistics service providers to reassess and rethink their strategies.

Export Platform for Asia

In Mandar in , China i s known as Zhongguo, which can be translated

into English as 'Middle Kingdom' or 'Central Kingdom'. The term roughly dates from c.1000 B.C., when the Chou people believed their nation occupied the centre of the earth. Some analysts claim that present-day China, because of its mounting economic, political and technological prowess, is poised to reclaim its place at the geopolitical centre of Asia.2

This may or may not happen. However, as far as trade is concerned, China is becoming the 'middle kingdom' of trade flow in the Asia-Pacific by being an important destination for the exports of its neighbours (adding to its existing position as the 'factory' of the world, with a USD 100 billion-plus trade surplus).

For instance, 14.3 per cent of Japan's exports go to China now compared to 6.3 per cent in 2000. China's share of South Korea's exports was 10.7 per cent in 2000, but today, the figure is 24.6 per cent. 6.6 per cent of India's exports end up in China, compared to 1.8 per cent in 2000. More than 7 per cent of the exports of Indonesia, Malaysia, Singapore, Thailand and the Philippines flow to China. China's share of combined ASEAN countries' exports has risen to 7.3 per cent from 3.8 per cent in 2000.

A number of developments explain this trend, including China's record economic expansion (GDP growth of around 10 per cent per year in recent years), which has churned out many energy- and resource-hungry industries, as well as an increasingly affluent middle class with a growing penchant

Peter Landsiedel Chief Executive Officer, DHL Global Forwarding Asia-Pacific

Peter Landsiedel is Chief Executive Officer of DHL Global Forwarding for Asia Pacific. Based at the regional headquarters in Singapore, he is responsible for the company's long-term strategic developments

in 17 countries, with approximately 3,400 employees. Mr Landsiedel was promoted to head the Asia Pacific region with effect from 1 September 2003. Prior to that, he was Vice President for the North Pacific region, overseeing the operations in Hong Kong, China, Taiwan, Japan, Korea and the Philippines. A German national, Mr Landsiedel joined the former Danzas in 1999 as Managing Director of Hong Kong and Greater China, where he significantly doubled the company's revenue contribution within six months and expanded Danzas' presence in Hong Kong. He was promoted to the position of Vice President for the North Pacific region in 2000.

Before joining the former Danzas, Mr Landsiedel was the President & CEO of Thyssen Haniel Logistics (United States) from 1993, and was the company's President & CEO (Hong Kong) from 1997.

Mr Landsiedel is a member of the Counsel for Logistics Management in the USA, and holds a diploma from University of Michigan Business School.

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1 EIU, Trading Up: A New Export Landscape for ASEAN and Asia, Hong Kong: EIU, 2007.2 Martin Bulard, "China: Middle Kingdom, World Centre", Le Monde diplomatique, August 2005.3 The Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation ASEAN and China

(Trade in Goods Agreement) was signed by the ASEAN and China Economic Ministers at the 10th ASEAN Summit in Vientiane, Lao PDR on 29 November 2004 and came into force on 20 July 2005. Two protocols incorporating further tariff concessions were subsequently signed in 2006.

4 EIU, Trading Up: A New Export Landscape for ASEAN and Asia, Hong Kong: EIU, 2007.5 EIU, Trading Up: A New Export Landscape for ASEAN and Asia, Hong Kong: EIU, 2007.6 Anna Bartram, "Logistics investment in China tops $126bn", China Economic Review, 21 November 2007.7 Susan Geng, "Yangpu to be gateway for ASEAN trade", Cargonews Asia, 12 November 2007.

for luxury and consumer goods; China's entry into the World Trade Organization (WTO) in 2001, which inserted the country into the multilateral trade liberalization process; and the signing of the Trade in Goods Agreement with ASEAN in 2004 as part of the ASEAN-China Free Trade Agreement, which granted exporters in South East Asia access to the 1 billion people in China.3

However, research indicates that another important factor may be at play here, which is China's changing role in the global pattern of manufacturing. The Economist Intell igence Unit (EIU) found that China has emerged as the "destination of choice" for final assembly and processing of goods. Par t s and components produced across the Asia-Pacific are shipped to China for the last stages of production before being exported to markets in North America or Europe.4 This "triangular journey", with China acting as a manufacturing or processing middleman, is transforming the country into Asia's 'export platform'.

Serving the Export Platform

What does this mean for the logistics industry?

The supply chains in the Asia-Pacific are fragmenting, resulting in different parts of production being carried out in different countries. Advances in technology and communications have also enabled companies to split up their supply chains into even smaller tasks and put those tasks in areas where they are done best and more cost effectively.5

In addition, supply chains seem to be integrating north-south, along an ASEAN-China axis, to accommodate the new reality of China becoming the export platform of Asia. Indeed, intra-ASEAN trade has declined (the share of ASEAN countries' exports destined for other ASEAN countries dwindled from 22.4 per cent to 20.9 per cent) compared to individual ASEAN

countries' direct trade with China.

China's new role as an export platform will have important consequences for the logistics industry. First, the industry will need to cope with more volume and increased traffic frequency, as China's imports and exports are likely to grow further. For instance, trade between China and ASEAN is expected to exceed $200 billion in 2008, double the figure in 2004. Second, the industry would need to cater for supply chains that are integrating north-south along the ASEAN-China axis. New transport networks and logistics nodes would have to be established to quickly and efficiently convey components from neighbouring countries to China, transport them from the ports/airports to factories in the interior of China, and finally return the finished products back to the ports/airports for export to the West.

China ' s log i s t i cs in f ras t ruc ture is p laying catch-up. Fixed-asset investments in logistics-related sectors hit USD 126 billion (CNY 940 billion) in the first three quarters of 2007, up 18.8 per cent year on year.6 More railways, highways, roads, airports and ports are being planned or being upgraded. An example is the new port of Yangpu in China's southernmost p r o v i n c e o f H a i n a n , w h i c h t h e government hopes wil l become a gateway for the expected rise in the China-ASEAN trade.7

Foreign logistics operators, with their international networks and professional expertise, also have a crucial role to play in supporting China's burgeoning international trade and new function as

Asia's export platform. In recent years, China has witnessed substantial foreign investment from major global logistics players, including DHL.

In late 2006, DHL Global Forwarding established a new Logistics Center at Shanghai's Waigaoqiao Bonded Log i s t i c s Zone (WBLZ) , which i s t h e l a rg e s t b o n d e d l o g i s t i c s zone in China. DHL also operates similar infrastructure in Guangzhou Huangpu, Yantian, Shenzhen Futian, Beijing, Nanjing, Songjiang, Jiutin and Shenzhen Nanshan. Incorporating advanced technology, these facilities perform the multi-functional role of an international transfer, distribution, and procurement centre to facilitate the eff ic ient and smooth f low of goods. They have been specifically built to facilitate China's growth and development as Asia's export platform.

Just recently, DHL Express announced its intention to build a new USD 175 million North Asia Hub in Shanghai to complement our other hubs in Hong Kong, Incheon, Bangkok, Singapore and Sydney. Our hubs in Shanghai and Hong Kong will connect the Yangtze River and Pearl River industrial zones to the rest of world, helping to service China's future logistics needs as the export platform for Asia.

In the past, the celebrated Silk Road connected the Middle Kingdom to the West. In this millennium, when China is once again at the middle of trading activity in Asia, we at DHL are confident that our services and infrastructure are ready to meet the challenge of facilitating the new trading landscape in the Asia-Pacific.

17Shippers Today

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18 Shippers Today

Agility emerges as global player as growth in Asia continues

The trend towards consolidation in the 3PL sector shows no sign of abating and one of the 'new' brands on the global logistics scene, Agility, has emerged through a series of mergers and acquisitions. In the space of a year, the merged company which brought together PWC Group and GeoLogistics as well as other strategic vertical market leaders such as F&E Specialist Trans-Link, Project Specialist Trans-Oceanic and the Chemical Logistics Specialist Agility UK, has increased its footprint across the world and into new markets.

As pressure grows to increase efficiency across the supply chain, global brand name manufacturers are now looking to outsource their logistics requirements wi th one or two g lobal log is t ics service providers. In order to remain competitive these global 3PLs are expanding their networks, buying sector

specialists in chemicals, oil and gas, project logistics and bulk transportation. The aim is to become a one-stop-shop, where customers are offered a complete range of services.

The global outsourced logistics market is set to grow to an estimated US$590 bn by 2010 from US$440 bn in 2007 which will mean more opportunities for logistics companies to expand. Much of the growth will be organic but there will also be a great deal of activity in mergers and acquisitions as consolidation continues.

The first year of the Agility brand has been very successful in Asia Pacific, and the Global Integrated Logistics (GIL) group has expanded its footprint through strategic acquisitions in China, Singapore, Australia and New Zealand. These acquisitions also helped to strengthen the network in the project forwarding sectors

and sea cargo. In China, Guangzhou Runtong International Transportation Company Limited (GRITCL) joined the Agility family; the company is primarily focused on ocean freight forwarding services in Guangdong.

Currently, Agility has 30 offices in China covering all major cities and industrial areas throughout the country. Given the economic growth in China and the corresponding growth in outsourced logistics services there are active teams of Merger and Acquisition staff working in China to identify companies that can be acquired in the future.

In Australasia, the major acquisition in 2007 was LEP International, including AFS, which expanded Agility's footprint in Australia, New Zealand and Papua New Guinea, where the company is market leader in Project Logistics. In Singapore the company acquired Synergy a specialist in providing the company with a presence in South East Asia's growing oil and gas sector. The other economic giant in Asia, namely India, has been developing very quickly and in 2008, there will be a major investment in the country.

The Vietnam joint-venture business will see further growth as the country's industrial exports increase.

The market will remain competitive and large 3PLs with backing from major financial institutions are raising the bar as they look to Asia to acquire strategically important companies. Economic growth continues across the region not only in China but also in India and South East Asia. At Agility, there is a great deal of excitement because of new opportunities in the Asia Pacific region in 2008 and we are optimistic of a good year ahead.

Wolfgang HollermannAgility CEO, Asia Pacific Region

Wolfgang Hollermann is Agility’s head honcho for the Asia Pacific region. As CEO, he leads the group’s initiatives in the Far East and the world’s fastest growing economies. The last 15 years saw him lead LEP/GeoLogistics in the same capacity until PWC Logistics acquired Geologistics in Sept 2006. His

leadership role in making GeoLogistics a corporate name in the global freight forwarding industry has ensured that he continues to drive similar growth at Agility. Prior to his long innings at GeoLogistics, Hollermann was Joint Chief Executive for Hermann Ludwig/Calberson Group, based in Singapore, Germany and the US respectively. During his stay in Singapore, he built up a network of offices in Asia, an experience that holds him in good stead in his current position. Hollermann was a part-time university lecturer on Logistics during his stay in Singapore. He earned his commercial degree at the Bremen College followed by additional German Diploma in logistics/freight forwarding and an executive trainee programme in International Transport Management in Europe and the US. Hollermann is married with four children. He has a deep community involvement with Asian and African orphanage projects.

by Wolfgang Hollermann, CEO, Agility APR.

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20 Shippers Today

2007—the Year of the Boar–was an exceptional year for UPS as we celebrated a centenary of being in the business. It is doubly encouraging to continue to see strong growth by the company especially in the international sector, and in particular, the upbeat economies of the Asia Pacific region.

By the third quarter of 2007, it was clear that the year of the Fire Boar was indeed bringing on much prosperity for the company. UPS in Asia was experiencing more than 20% in export volume growth

Kenneth A. TorokPresident, UPS Asia Pacific

As President of UPS Asia Pacific, Ken Torok is responsible for all UPS express and supply chain solutions operations in more than 40 countries and territories, including UPS owned operations, joint ventures and agent relationships throughout the region. Torok has led UPS's express operations in

Asia Pacific since 2003. His expanded responsibilities to cover supply chain solutions mark a new phase of development for UPS in Asia Pacific. Prior to becoming President of UPS Asia Pacific, Torok was Managing Director of UPS South Florida. In this capacity, Torok played a key role in the integration of UPS package delivery, logistics, warehousing, freight forwarding, brokerage and airline operations.

Torok began his UPS career in the US in 1975 in the company's East Carolina district operations. He later became hub manager in Wisconsin and Managing Director of UPS Utah, and has also spent several years in Europe where he held various managerial posts and played a key role in the integration of UPS's ground and air operations in Europe, Middle East and Africa. A native of Long Island, New York, Torok graduated with a degree in business and economics from North Carolina State University. He and his wife Sharon reside in Singapore.

The logistics industry is also seeing a changing phenomenon. Major players such as China are demanding better logistics and supply chain services to serve them locally so as to meet growing demands for domestic and international consumptions

Logistics Industry Outlook 2008

Greatboarsoffire!

compared to the same period in 2006. The main contributors included regional powerhouses China and India, with export volume growth at more than 25% for each market for the three quarters.

Moving forward, 2008 looks certain to bring on another year of continued g rowth fo r t he l og i s t i c s s ec to r. According to MergeGlobal, the industry growth in terms of tonnage from 2007 to 2010 is projected at 36.7%. Demand for international shipment expects to surge in 2008 and over the next several years,

driven mainly by export activity out of Asia, particularly in China and India. The Beijing 2008 Olympic Games will continue to be the key growth driver for China, creating strong demand for logistics support and good flow between China and the rest of the world.

With India's gross domestic profit growing at over 9% per year and the manufacturing sector enjoying double digit growth rates, the Indian logistics industry is at an inflection point, and is expected to reach a market size of over US$125 billion in year 2010. Strong foreign direct investment inflows in several industry sectors will also lead to increased market opportunities for 3PL providers in India.

The logistics industry is also seeing a changing phenomenon. Major players such as China are demanding better logistics and supply chain services to serve them locally so as to meet growing demands for domestic and international consumptions.

In addition, some of our customers in this part of the world, who previously had their logistics operations managed in Europe and the U.S., are now moving their supply chain management needs to Asia. This is a growing phenomenon which the UPS Asia Business Monitor (UPS ABM) 2007 has captured as well. The ABM, which is an annual s t udy commis s ioned by UPS to examine the driving force behind Asian SMEs, found that more than 70% of the region's SME leaders believe that an effective supply chain helps their company to be more cost and time efficient. Evidently, Asia businesses are awakening to the benefits of a well-managed supply chain in order to help

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them maintain their competitiveness and protect their businesses, in the face of volatile challenges beyond their control, ranging from changing trade policies, surging production and raw material costs and the likelihood of a down-spiraling US economy that may further affect more parts of Asia.

Asia

Although the US slowdown will likely constrain growth in the EU and Japan, led by the Chinese mainland, the dynamic growth of developing Asia will largely remain unscathed from the global slowdown. Intra-regional trade should continue to be an area of growth for the industry in 2008.

Asian markets are vitally important to UPS and the company sees true, long-term growth potential in the region. According to MergeGlobal, the industry CAGR for intra-Asia trade in terms of tonnage from 2004 to 2009 is 7.6%. UPS will continue to grow our business through the strategic expansion of our network, infrastructure and portfolio of services in order to help our customers navigate global commerce. We expect intra-Asia trade to continue to flourish as manufacturers capitalize on the comparative cost advantages offered by different economies in Asia, greater integration between Asian economies and more intra-Asia Free Trade Agreements.

More businesses will turn to reliable supply chain services providers with a strong network in Asia to help them with supply chain management in order to become more competitive. UPS's strategic focus is on developing business in Asia, in particular the large and growing economies of China, India and Japan.

Milestones

In fact, to meet market demands and as testaments of our commitment to Asia,

UPS recently made investments that will change the logistics landscape of China, India and Japan.

In August 2007, UPS started construction of the UPS International Air Hub in Shanghai, China. The new hub is being built on a parcel totaling 1 million square feet and slated to complete towards the end of this year. Rapid expansion is planned to a sorting capacity of 17,000 pieces per hour.

Following this in September, UPS was granted the authority to operate six daily flights between the U.S. and Nagoya, Japan, in addition to its daily service to Tokyo and Osaka. UPS will be able to connect these flights to its new air hub in Shanghai, China. Japan has the world's second largest gross domestic product and the opening of air lanes between Nagoya and Shanghai will improve our services to customers throughout Asia, especially China and Japan

Starting January 2008, UPS Jetair Express has formed a strategic alliance with leading local logistics player AFL. The partnership significantly expands accessibility to UPS services in India and exponentially increases UPS access points for customers with international express delivery requirements to more than 200 locations.

Renewal Vs Transformation

Overall, UPS remains very confident about Asia in the year of the Earth Rat, which signifies a time of renewal, or as UPS sees it, a time of transformation. Tr a n s f o r m a t i o n h a s b e e n a k e y component of UPS's long term success, as we grew from a small messenger business on a bicycle in 1907 to be a leader in global logistics today.

With 100 years of industry experience, UPS has extensive intellectual capital and has put in place innovative supply chain capabilities and technology in its

operations around the world. Moving ahead , the company wi l l use i t s knowledge and expanding capabilities to connect suppliers and customers one-to-one.

The vision of One-to-One, as put forward by our former Chairman and CEO Mike Eskew, refers to offering more options for our customers to meet their supply chain needs; more bundling solutions that target market segments like healthcare, high tech and retail; presenting one point of customer contact supported by a specialized team; and having the right technology for customers to easily request services like notifications, shipment status, etc.

8 New UPS Products for 2008

To equip our customers wi th the right tools to take on their supply chain challenges in the new year, we have strengthened Asia's portfolio of products and services with eight new products. Three are unique freight products as they are rooted in both the integrator and freight-forwarding business models. Four are consumer technology products including the industry first UPS Paperless Invoice and UPS Returns, which come as a direct result of the annual US$1billion UPS inves t s in t echno logy. The eighth product, UPS Clinical Trials is targeted at the pharmaceutical and biotechnology companies where they need biological products to be shipped internationally.

The greening of the supply chain will drive continuing attention to fuel, packaging, waste minimization and flexible mode shifts that balance speed to market of air transit with lower carbon options from ocean and ground. Companies will seek paperless options for Cus toms documenta t ion and visibility tools to enhance planning; network optimization with routing/scheduling/dispatch.

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22 Shippers Today

23Shippers Today

Senator International Logistics Limited Hong Kong has put it’s footprint in South China with the opening of the Shenzhen Representative Office late last year. During the official Opening Ceremony, Senator International

Chairman, Uwe Kirschbaum, gave his blessings and best wishes for a successful business. Seen at left are (from left), Jochen Krug, Uwe Kirschbaum and Rainer Helm during the office inauguration in November.

The Shenzhen office is under the m a n a g e m e n t o f L i s a Wa n g a n d Simon Zhang. It provides customer s e r v i c e a n d s a l e s s u p p o r t f o r business to and from the Guangdong Province. Services offered include:

· Airfreight direct via Shenzhen or via Hong Kong

· Oceanfreight via the Shenzhen ports and Hong Kong

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Senator International Hong Kongopens Shenzhen office

· Logistics and Value Added Services like Pick & Pack, Quality Control, Sorting, Assembly and more.

To contact Senator International Logistics Limited-Shenzhen Representative Office, call +86-755-2219 1889 or fax +86-755-2219 1887, at Room 1904, Shenhua Commercial Building, Nanhu Road, Luohu District, Shenzhen 518001, P.R. China. Contact person is Simon Zhang , Opera t ion Manager, t e l . +86-755-2219 1889 or email simon.zhang@szx.senator-international.com, or Lisa Wang, General Manager South China, tel. +86-755-2219 1883 or email l isa.wang@szx.senator-international.com.

European benchmark study:The Netherlands scores best on qualitative location factors

A recent benchmark study, comparing the re la t ive a t t rac t iveness of 21 European c i t i e s , shows tha t the Netherlands offers excellent locations for European supply chain activities, reported NDL/HIDC which represents the logistics sector in the Netherlands. The main dr ivers for the leading position of the Netherlands are the labor conditions and the regulatory and customs environment, along with competitive costs for transport, and the availability of intermodal transport solutions.

The benchmark study 'High quality, competitive costs' was conducted by Holland International Distribution Council (HIDC) and Buck Consultants International (BCI), and compares different cities as location for central European distribution centers(EDCs) or regional distribution centers (RDCs), by analyzing various business case scenarios in the high tech, spare parts, lifestyle and med tech industries. This benchmark study covers a broader scope than other studies by taking into account total supply chain costs from source to market, as well as qualitative factors, such as physical accessibility, quality of labor, availability of transport solutions and regulatory climate and customs regime.

Labour and Customs

From a qualitative perspective, the Nether lands scores exce l len t ly, i n pa r t i cu l a r i n t e rms o f l abour flexibility, as seen in hiring and firing regulations. The Netherlands' high rating for Customs regulations is also to its advantage. The Dutch Customs authority is known for its efficient working procedures and pro-business attitude. This is also supported by the recent outcome of the Logistics Performance Index published by The World Bank, in which the Dutch customs regime even scores best in the world.

Transportation

I n o r d e r t o p r e s e n t a n a c c u r a t e indication of how the various locations relate to total supply chain costs, the costs for both inbound transport (from source to DC) and outbound transport (from DC to customer) were taken into account in the study. Even though the Netherlands does not have a reputation for being a low-cost country, the study showed that the transport tariffs to and from the Netherlands are lower than in the other European countries surveyed. The strong position of the Dutch sea- and airports, the abundance of European transport services from the Netherlands and the central location within the European market, contribute to these competitive transport costs.

European supply chain structures

As a result of market developments and cost factors, companies opt increasingly to supply the European market through hybrid supply chain structures. This means applying different supply chain solutions for different customers, regions or product types. Locations chosen for European supply chain operations should therefore be related to their purpose. The competitive position of the Netherlands is favorable for companies that supply the European market via an EDC structure as well as for those that use an RDC structure.

A digital copy of the report 'High quality, competitive costs' can be downloaded from www.hidc.nl.

NDL/HIDC represents the logistics sector in the Netherlands and helps in terna t ional companies make a smooth entry into the European market or restructure their supply chain through the region's leading gateway, the Netherlands. All NDL/HIDC's services are free of charge and without obligation.

For more in format ion about the benchmark study, please contact the local representative of NDL/HIDC:NDL/HIDC Asia, Ms. Karin Rancuret, Regional Director Asia, tel, +852 2297 3544 (Hong Kong office), e: k.rancuret@hidc-asia.com.

SUPPLY CHAIN MANAGEMENT

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24 Shippers Today

2� Shippers Today

The outlook for the air cargo industry in 2008 is probably best described as extremely challenging. 2007 was certainly a difficult year, with yields falling as a result of overcapacity and costs rising due to record-high jet fuel prices. We also saw a significant modal shift from air to ocean take place and it is likely that this trend will continue if fuel prices remain at their current levels.

Recently, there has been an increase in trade friction as a result of widening directional trade imbalances and this trend is unlikely to change given that most products are manufactured in Asia

but consumed in the United States and Europe. So far the trade friction has not had much impact on air cargo but there is a concern that directional imbalances will continue to get worse as capacity is added to serve the headhaul demand. This will put more pressure on margins going forward.

The air cargo industry will also have to come to terms with increasing security requirements and environmental activism, which will place a greater cost burden on the whole supply chain. We can expect rising pressure on consumers to purchase locally grown fresh produce

and a reduction in air cargo purchases by shippers anxious to prove their own green credentials. The environmental challenge is not just about how we cope with additional cost as a result of taxes or emissions trading but also the negative impact it will have on consumption and the choice of mode of transport. We can expect to see acceleration in the retirement of older freighters as pressures mount on the bottom line and this will put increased strain on flight crew training resources which are already stretched thin. Rapid airline growth in recent years and aggressive expansion plans have resulted in a worldwide shortage of qualified flight crew, and crew costs are on the rise as a result of the pilot shortages.

Another constraint on growth is the lack of sufficient airspace, slots and airport infrastructure - not just in Asia but in many of the major air cargo consumption markets. Air cargo tends to favour late night departures because of consolidation and therefore often runs up against local noise restrictions on runway movements, which is another constraint.

Then there is the subprime credit crisis to contend with and the drastic depreciation of the US dollar. The loss in currency value and the tightening of credit is likely to have a negative effect on consumption in the US and may even trigger a serious economic downturn. The air cargo business has always been cyclical and trade flows are likely to be negatively affected by a loss in consumer confidence and any drop in underlying economic activity.

Ron Mathison, Director & General Manager Cargo for Cathay Pacific Airways Ltd, is responsible for all aspects of the airline's cargo business worldwide, including operations, marketing and sales. He is a member of Cathay Pacific's Management Committee and an Executive Officer of the airline. He is also a director of Air Hong Kong, and a director of Global Logistics Systems Asia Pacific and Global Logistics Systems Worldwide (Traxon). Mathison

joined Cathay Pacific in 1984 and has held a number of different managerial assignments overseas as well as in marketing and sales and revenue management. Most recently, he was Director & General Manager of Cathay Pacific Loyalty Programmes Ltd, a wholly owned subsidiary of Cathay Pacific Airways Ltd charged with managing the airline's Loyalty Programmes, The Marco Polo Club and Asia Miles, as well as developing the airline's Loyalty Marketing and Customer Relationship Management strategy. He has been in Loyalty Marketing since January 1994 when he set up Cathay Pacific's Loyalty Marketing Department and was in charge of the development and launch of the Asia Miles Travel Reward Programme in February 1999. He also led Cathay Pacific's Datawarehousing and Business Intelligence Programme (Customer Information Systems) and was in charge of Customer Information Systems from 1996 to 2004. Mathison holds a Literae Humaniores and Master's degree from Oxford University. He is married with three children.

2008 fraught with challenges for air cargo industry by Ron Mathison

Director & General Manager Cargo Cathay Pacific Airways

AIR

AIR

27Shippers Today

Hong Kong itself is facing increasing competition from new airports in the Pearl River Delta (PRD) region and rapid growth in competing hubs such as Shanghai, Seoul and Dubai. It cannot be denied that its position as the world’s largest air cargo hub and the leading gateway to the PRD is under threat. So far Hong Kong International Airport has held its own but we can expect that growth in air cargo throughput in Hong Kong will be a lot lower than at these other airports in 2008.

However, it is not all doom and gloom and we remain confident about the long-term prospects for air cargo growth. Hong Kong still has a lot of advantages as a hub for air cargo and we remain committed to investing in our cargo facilities here as well as in our freighter fleet. There is much that can be done to take unnecessary cost and time out of cross boundary

truck movements and there are other opportunities to make HKIA more competitive as a transshipment hub and regional distribution centre.

O n e o p p o r t u n i t y t h a t i s w o r t h highlighting is e-freight, where Hong Kong is ideally positioned to take the lead given its Freeport status, efficient customs regime and supporting IT infrastructure. The move to e-freight is not just about taking paper away; it is about improving the visibility of goods throughout the whole supply chain and speeding up the processing of shipments. Together with Cargo 2000,

it provides an opportunity to make the air cargo industry more competitive as a mode of transport.

Hong Kong is also well positioned to capitalise on trade growth between Ind i a and Ma in l and Ch ina and , notwithstanding the economic worries mentioned above, we should expect to see continued rapid growth in these economies. We must brace ourselves for the chal lenges that l ie ahead but trust in our ability to cope with adversity and aim to come out of it with renewed strength and vigour. That has always been the way in this city.

28 Shippers Today

AIR

TNT inaugurated i ts Asia Road

Network into China in the fourth

q u a r t e r o f 2 0 0 7 b e c o m i n g a

pioneer in Asia as an integrated

road network integrator linking six

countries across 4,000 kilometres.

T h e r o a d n e t w o r k , w h i c h

connects Singapore to Nanning,

t h e c a p i t a l c i t y o f G u a n g x i

Z h u a n g A u t o n o m o u s R e g i o n ,

and Guangzhou , the cap i ta l o f

Guangdong Province, will become

fully operational early 2008 after

completion of the last trials. The

A s i a R o a d N e t w o r k c o n n e c t s

to TNT's in te rna t iona l express

network in China and linking it to

TNT's Chinese domestic network

will be a next step. This move will

eventually allow TNT's customers

to bene f i t f rom seamless road

connections in the region.

T h e i n t e g r a t e d r o a d n e t w o r k

reflects the extensive road network

operations TNT has established

i n E u r o p e . " P r e d o m i n a n t l y ,

TNT Hong Kong deals with the

European marke t—60% of our

consignments out of Hong Kong

are bound for Europe. When the

sh ipment reaches the TNT hub

in Europe, in either Amsterdam

o r F r a n k f u r t , t h e s h i p m e n t i s

then transferred to the TNT air

hub or the road hub where it gets

distributed by truck on the road

n e t w o r k , " e x p l a i n e d A m b r o s e

L inn , manag ing d i r ec to r, TNT

Hong Kong.

The road ne twork d i s t r ibu t ion

channel in Europe comes under

T N T ' s d e f e r r e d s h i p m e n t f o r

e c o n o m y f r e i g h t . " W i t h t h e

product, global express logistics, it

takes 4 to 5 days' transit time door

to door, while economy freight

takes 2 or 3 days longer, or about 7

days in all."

Linn explains that TNT is purely

an ‘express link logistics' company.

"We are not in the integrated 3PL

service. Express link logistics is

a core part of the logistics cycle,

whereby air cargo is flown by the

global express channel, which is

clearly much faster than airfreight

and seafreight channels.

"In the global express channel ,

a b o u t 9 5 % o f t h e c u s t o m e r s

we a r e dea l ing wi th a r e h igh -

TNT’s ‘Focus on Networks’ strategy

An illustration of TNT’s Asia Road Network

30 Shippers Today

AIR

end technology cus tomers , the

likes of Apple, Acer, IBM–these

commodities are time critical, time

sensitive, which require them to be

conveyed by global express."

TNT assists these customers who

have to be mindful of production

lead time, and the sales order lead

t ime . " Jus t two years ago , the

customers used to give their clients

abou t two mon ths ' p roduc t ion

lead time. But now the production

lead time has been substantially

shortened to less than 2 to 3 weeks.

That's why we are the only viable

a l t e rna t i ve fo r t he p roduc t ion

p l a n t s o f O E M t e c h n o l o g y

products. They have to ship the

parts all the way to end users in

Europe by global express channel

which is a door-to-door delivery

service," explains Linn.

" U s u a l l y, i f y o u s h i p d o o r t o

door, ex-factory, via Hong Kong

to Europe, by seafreight it would

take 14 to 18 days. By airfreight

channel, it would take 8 days by

normal airfreight, door to door.

If you ship by global express, 4

days is our service guarantee, a

commitment to our customers that

use TNT's global express door to

door delivery services. We ship

our customers' products under a

solution called IDE –Integrated

Direct Express," described Linn.

" Ta k e a n O E M i P O D f r o m a

factory in Dongguan. It is moved

across the border by truck into

Hong Kong, and the t r ip takes

about 6 to 7 hours. It is actually

shorter but Customs clearance cuts

heavi ly in to the del ivery t ime.

When the pallet arrives at the TNT

Hong Kong a i rpor t hub , va lue

added services are done, such as

quality control, external package

t a g , i n s p e c t i o n f o r d a m a g e s ,

RFID, and so on , a t a bonded

restricted area. The cargo transit

turnaround time in Hong Kong is

less than 2 to 3 hours after which

the shipment i s upl i f ted to the

a i rcraf t a t around 9 to 10 p .m.

bound for Europe or the US."

W h e n t h e s h i p m e n t r e a c h e s

Europe, it is taken either to the

road hub or the air hub. "When the

shipment arrives at the European

road hub, the cargo is depalletised

and then injected into the European

road network. The t ruckage on

road comes under the defer red

phase and we ca l l i t e conomy

freight because the price is much

cheaper than airfreight. On the

o ther hand, the sh ipments tha t

go to our European air hub will

be injected into the European air

network to be delivered by TNT

aircraft to European destinations.

Upon ar r iva l a t the des ignated

airport, the shipment is loaded onto

vans for delivery to the end users.

This is the express service—using

the European air hub."

Linn notes that domestic activities

in Europe are on the growth path

but it seems that in the US, while

domestic air has been increasing,

r o a d a c t i v i t i e s h a v e b e e n

diminishing. There is the issue of

overburdened infrastructure in both

Europe and the US that makes it

hard to push expansion until these

are less stressed. Meanwhile, Asia

has the economic momentum that

is driving faster growth.

Int roduced a t the end of 2005,

TNT's Asia Road Network connects

Malaysia, Singapore, and Thailand

through the north-eastern border of

Asia has the economic momentum that

is driving faster growth-Ambrose Linn,

managing director, TNT Hong Kong

Vietnam. Boasting 24x7 real-time

Global Positioning Satellite (GPS)

tracking of TNT's container trucks,

TNT has seen double-digit growth

in overall volumes since the launch

in 2005. The growth is largely

driven by customers moving high-

value goods such as electronic,

a u t o m o t i v e a n d c o m p u t i n g

componen t s . The road se rv i ce

is two to three times faster than

sea freight and offers customers,

significant savings of up to 30%

compared to air freight.

Headquartered in the Netherlands,

T N T o f f e r s e f f i c i e n t n e t w o r k

i n f r a s t r u c t u r e s i n E u r o p e a n d

Asia and is expanding operations

w o r l d w i d e t o m a x i m i s e i t s

network performance. TNT serves

m o r e t h a n 2 0 0 c o u n t r i e s a n d

in 2006, reported €10.1 bi l l ion

i n r e v e n u e s a n d a n o p e r a t i n g

income of €1,276 million. TNT N

V is publicly listed on the stock

e x c h a n g e s o f A m s t e r d a m a n d

New York.

32 Shippers Today

The In terna t iona l Air Transpor t Association (IATA) released from Geneva last December, a new industry financial forecast estimating a global industry profit of US$5.6 bil l ion in 2007 falling to US$5 billion in 2008. IATA represents some 240 airlines comprising 94% of scheduled international air traffic.

The outlook is unchanged for 2007 at US$5.6 billion. Higher oil prices (full-year average forecast of US$73 per barrel) were offset by strong traffic growth (5.9% for passenger traffic) and even stronger revenue growth of 8.4%.

"For the first time since 2000, we are profitable. That is good news, representing a lot of hard work by airlines. Since 2001, non-fuel unit costs dropped 16%, labour productivity is up 64% and sales and marketing unit costs decreased 25%. But with a 1.1% margin, the bottom line is still peanuts," said Giovanni Bisignani , IATA's Director General and CEO.

IATA sharply revised downward its outlook for 2008 to US$5.0 billion from the previously forecast US$7.8 billion. The spike in fuel prices is expected to add US$14 bill ion to the industry fuel bill, driving it up to US$149 billion (based on an average p r ice o f US$78 per ba r re l ) . The broadening impact of the credit crunch is expected to slow revenue growth

to 4.7% and traffic growth to 4.0%. Simultaneously, capacity expansion is expected to accelerate in 2008 with an increase in aircraft deliveries to 1,281 (up from 1,041 in 2007).

"The challenges get tougher in 2008. A favourable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned profitability improvements. With the credit crunch, that is changing. The peak of the business cycle is over and we are still US$190 billion in debt. So we could be heading for a downturn with little cash in the bank to cushion the fall," said Bisignani.

• W h i l e l e a d i n g i n a b s o l u t e profitability in both 2007 and 2008, North American carriers will see the largest fall in profitability from US$2.7 billion in 2007 to US$2.2 billion in 2008. With 35% of the fleet over 25 years old, the impact of high fuel prices is greater than in other regions. Moreover, the region is at the centre of the credit crunch.

• European and Asian carriers will see minor drops in profitability of US$100 million each to US$2.0 b i l l i o n a n d U S $ 6 0 0 m i l l i o n respectively. Robust traffic growth to and within Asia is expected to partially insulate carriers from the impact of the crunch.

• Middle East wil l remain s table at US$200 million supported by ambitious route expansion.

• Latin America is the only region to see profitability improve by US$100 million to breakeven in 2008. This is largely the result of industry re-structuring.

• Af r i ca wi l l be the on ly r eg ion reporting a loss—stable at losses of US$100 million last year and this.

"The common theme globally is t he need fo r e f f i c i ency. IATA ' s Simplifying the Business programme is delivering critical efficiencies from e-ticketing to e-freight. In 2008 IATA will launch three major initiatives that will cut costs and improve service," said Bisignani.

"We will further revolutionise the travel experience with expanded self-service options to give passengers more control over their journeys. The new strategy is built around the success of the Common-Use Self-Service Kiosk, already operating at 83 airports around the world. Better baggage managemen t w i l l he lp mitigate the US$3 billion in annual costs from the 1.8% of bags that are mishandled. And the IATA Safety Audit for Ground Operations will help reduce the US$4 billion annual cost of ground damage," said Bisignani.

IATA financial forecast predicts

2008 downturn

AIR

the concept of DTTN to a lot more people. Internationally, one of the tasks that we're facing is to create a connection between DTTN and other similar platforms elsewhere. The national single window concept is a very strong trend that is emerging, par t icular ly in Asia and you can see how it would be of tremendous benefit for DTTN if all these networks w e r e t o s p r i n g u p a n d w e r e a l l interconnected. In fact, DTTN users would be interconnected not just for transactions with logistics suppliers in Hong Kong but also with their overseas counterparts - their buyers, their sellers elsewhere. This is how we can make use of DTTN to complete the supply chain automation effort."

While multinational conglomerates that make up the companies in Hong Kong's trading and logistics industries do electronic trading and SMEs do understand and see the need of going digital if they were to conduct business with them, there are still some who hold back. "There is still a bit of inertia in the industry about going electronic," comments Yue. "Some can understand the concept and see the need for migration from paper to e-documents, but for some it is a bit of a hassle simply because even if a certain company A is connected, another trading partner, company B, may not be. Hence, this is why I said at some point we need to reach critical mass so that when new users come online, they can use DTTN not only to link up with their buyers, but with the suppliers as well as with the logistic providers (shipping lines, freight forwarders, airlines)."

e - LOGISTICS

The product and service suites were rolled out in October 2006 and the partnerships are now in place for Hong Kong's own Digital Trade and Transportation Network. DTTN for short, the platform is owned and operated by DTTNCo, an associated company of Tradelink Electronic Commerce Limited (Tradelink) and partly owned by the Hong Kong Government. DTTNCo operates an electronic platform that provides interconnection among the trade, logistics and finance industries to facilitate the exchange of electronic documents and information.

DTTN is on its way to achieving its ultimate aim that would showcase its viability to the rest of the world - achieving critical mass. The network's functions and products have been developed to cater not just to one part of the trading community, or to the logistics community, or the shipping and transport community - but for all these sectors to interact in one smooth flow of commercial transactions.

"DTTN is a first for Hong Kong and a first for the world. The concept has already caught on in other places - the general concept that they call a 'national single window' which is a phrase coined by the UN. We've already achieved this with the combination of Tradelink and DTTN," said Justin Yue, Chairman of DTTNCo, meaning a connection between the trading community and the logistics and trading platform.

"This year, we will keep driving our recruitment of users. We need to sell

Digital Trade and Transportation Network (DTTN)

The crucial stage: Achieving critical mass

by Gina Giron-Urquiola

34 Shippers Today

Critical mass

"First of all, one has to keep in mind that SMEs don't trade with SMEs. SMEs look to receive orders from the bigger companies, the likes of Li & Fung in Hong Kong, Wal - Mart in the US, Metro, and so forth.

"Therefore, we have developed an approach to DTTN that you could describe as the hub - and - spokes method. We sign up a large user - this could be a major freight forwarding company or a large buying company - and when they come online, their many partners or customers, including SMEs, would automatically be users of the DTTN platform," explains Yue.

"So what we 've done in terms of recruiting customers so far, since DTTNCo's launch in October 2006, is that we have enlisted more than 3,000 customers, including lots of bigger users and lots of SMEs. And our approach ensures that larger users would bring in a cluster of SMEs. In the case of a big trading company, for instance, the SMEs could be small suppliers, or accessory suppliers. In the case of freight forwarders, then these would be the shippers using the forwarder. Again, the shipper could be several SMEs or a large one, the likes of DHL which you would consider a big shipper with many 'users', the users in this case being their customers like the larger electronic companies in Hong Kong. And on the other end of the spectrum, DHL has small users such as an SME sending a small parcel. So they all come in as one hub - and - spoke or cluster, under DHL.

3� Shippers Today

e - LOGISTICS

So this is how we are proceeding in terms of recruitment," Yue points out.

"In terms of providing connection, we have two solutions. For the SMEs, we offer a very simple solution, what we call Excel form. For example, the SME needs to set up a PO or Purchase Order. They get free software from us which is used on their own PC utilising the Microsoft Office suite, and creating a PO with Excel. As simple as that.

"Now, that's ok for the SMEs, but each time you do a PO, you have to do data entry. So for the larger users, we offer a more efficient solution whereby you can integrate DTTN into your back - end system. Initially, you have to tell DTTN the documents you propose to use through DTTN. The package itself has already been designed to use a particular standard, such as EDI or XML. They have to te l l us the documents they wish to generate, such as PO, advance shipment notice, packing list, commercial invoice. We look at the format you are already using and do a one - time mapping of your documents - we format it to the DTTN format. When we've completed the one - time format, then your back - end computer system can be configured to create the DTTN documents automatically. It has proven to be a very efficient method on how to connect to the larger users."

"For our basic solutions, we have lined up six different partners under the project to "Promote the Use of e - Business in the SME Community". The six software vendors have been selected by the panel of judges representing the HKSME Association, HKITF and DTTNCo to develop seven front - end software applications covering 10 business processes and over 70 business documents being used along the supply chain. These solutions include:

• Insurance application developed by Infinite Financial Solutions Limited;

• ERP (Enterprise Resource Planning)

Costs

As per an agreement with Government when the concept of DTTN was first being formed, DTTNCo cannot charge over $2.50 per transaction. "In general, the fees we charge, such as the transaction fee, are something we agreed with the Hong Kong government, which is not more than $2.50 per transaction. A 'completed transaction' comprises one transaction sent and a return confirmation." The fee could go down to $2 depending on the volume, as with a large freight forwarding company, for instance.

"SMEs are really small shippers, doing a limited amount of shipping with a turnover of perhaps a couple of million per year. And they are maybe not transacting directly with buyers in either Europe or the US but are working through some of the large trading companies in Hong Kong. Some of them may have a small office in Hong Kong but with a lot of suppliers in China, or even their own manufacturing operations," says Yue. Which leads him on a tangent, that of moving across the border into China, where many of these customers are.

"We already have quite a few customers with operations in Guangzhou, Shanghai, Beijing, Tianjin. We are now looking at efficient and cost effective ways of serving our customers outside of Hong Kong, particularly in China. We have to look for local partners to provide different levels of service, such as to handle the initial registration, and in some cases, to do the activation of the service. If it's a SME, we can send the software in the form of a CD but they will need customer support. Hence, the need for a presence there. Furthermore, we need to have a payment solution for customers outside Hong Kong."

Break - even

"When we first started, we did a very detailed cost benefit analyses for one of the larger freight forwarders in Hong

applications developed by United Technologies (International) Limited, Thinking Technology Limited and MYOB Hong Kong Limited / Purpose Driven Solution Limited, and

• FMS (Freight Management Systems) developed by United Technologies (International) Limited, Dynamic Tech Consultants Limited, and eBean Century.

Riding on the DTTN platform, customers can make use of these free software solutions for e - business use and this can help facilitate the business workflow for the SME community.

"To these partners, we provide the basic Excel documents on top of which they can add any useful, value adding solution or applications that they might need. This enables us to approach potential customers with a wider range of options that they can use within their own offices, and choose their options. And these are free because in fact the development aspect has been from a grant of a Government funding programme," explained Yue.

"In terms of partners, Tradelink is the largest partner of DTTN, of course. Anyone joining DTTN is enabled to link up with the more than 54,000 Tradelink customers, and if you are already doing business with anyone of them, then the better for you. The over 54,000 Tradelink customers by and large comprise the majority of the Hong Kong trading community.

"The other connections provided on the DTTN e-platform, in addition to trading, are freight forwarding, insurance, banking, and terminal operators. With the terminal operators, we are linked through OnePort. In banking we have connection to the Bank of East Asia and more are in the works, including HSBC and Hang Seng Bank. We are still arranging the insurance links, which would include marine and air cargo insurance."

37Shippers Today

Maersk Line launched on January 15 the online shipping service for small businesses, Youship.com through the website www.youship.com. Intended for small direct shippers and freight forwarders in the Greater China area, one can ship up to five containers only via the service. The website provides high transparency, with real - time rate checking and availability of space, even without prior registration. The system works with great similarity as online booking of airline seats - the sooner the shipment period, the more expensive the cost.

"The cost quoted on Youship.com is all inclusive, a port - to - port, all - water cost. There are no surprise charges once you've booked your container and paid for the booking with Visa or Mastercard," said Lars Jensen, director Youship.com. "You are also given the choice of paying in advance for destination fees, or just leave that up to the consignee on the other end."

The new online service operates on 17 different trade lanes out of Hong Kong (Modern Terminals Ltd). Once you have selected the date and port for the container's shipment, you are given

a schedule of when to deliver your container to Modern Terminals at the Hong Kong port.

"With this new service, youship.com has taken the traditional shipping process and turned it on its head in order to meet the needs of customers who prefer to buy online. We're giving the smaller customer more control–the customer will experience Youship.com as a revolutionary new service," explains Jensen. "We believe the market has been waiting for this type of service. Youship.com offers space guarantee with immediate confirmation and an all - in, up - front, attractive price to customers directly on the website."

Along with 17 different trade lanes out of Hong Kong (including AE7, AE10, AU2 and IA2), Rotterdam and Antwerp, a new lane from Rotterdam to Yantian, Shenzhen, will soon be put into service.

The new service eliminates the need for time - consuming manual workflows, phone ca l l s back and fo r th , and subsequent additions of local and floating surcharges. Clear information on pricing and availability is accessible online and in real time. Customers simply choose

their shipping date and cargo volume, from 20ft, 40ft or 40ftHC containers, and can follow the prices on each of the trade lanes. The online booking works on a first - come, first - served basis, and lower rates are available for early bookers.

Orders can be completed in less than 10 minutes and there is a window of 60 minutes to complete an order and pay for it, since supply is constantly changing. For registered customers, it is simpler - - just point and click in order to book the shipping date and cargo volume. Once the order is placed and paid, they automatically get an E/Doc confirming the order. The E/Doc is their space guarantee – even when booking 8 weeks in advance. Youship.com's policy is never to overbook; however, should a rolling occur a full refund is of course given, along with space on the next vessel.

Maersk Line (www.maerskline.com) is a global liner shipping company with more than 500 container vessels and over 1,900,000 containers.

Thinking outside the box

Youship.com revolutionises container shipping

Settling orders online by credit card

Different rates quotation on Youship.com

e - LOGISTICS

Kong. At that time, the freight forwarding company had a team of a hundred people to process orders by telephone or by fax. They reckoned that if they were to switch over to using DTTN - - processing all the orders through the DTTN system by their computer system - - they would need 90 less people from the team and monthly savings would amount to some HK$300,000," commented Yue.

"Of course, for SMEs the savings will

not be that big but it does increase their efficiency and makes them more accessible to bigger partners than other SMEs with no electronic network capabilities."

Yue explained that the government is a shareholder in DTTN, with an ultimate shareholding of 21%. "Eventually, DTTN would have to be financially self-sufficient but right now, we've not reached the break-even point. But that will come.

"This year, we will keep driving our recruitment of users. We need to sell the concept of DTTN to a lot more people. Internationally, one of the tasks that we're facing is to create a connection between DTTN and other similar platforms elsewhere."

DTTN is connected to shipping lines through the portals of INTTRA, GT Nexus, and soon to Cargo Smart. With airlines, DTTN users can connect via Traxon.

G S 1 H ong K ong , t o ge the r w i th the Economy and Trade Bureau of Chancheng District Foshan, China, and Wal - Mart are joining forces to create a programmeme to drive adoption of EPC/RFID (Electronic Product Code TM/Radio Frequency Identification) technology. The programmeme is aimed at enhancing efficiencies of import - export activities between the Pearl River Delta (PRD) and the global market using EPC/RFID technologies, ultimately creating an RFID industry chain.

The Federation of Hong Kong Industries (FHKI) reports that approximately 60,000 Hong Kong manufacturing facilities are operating in the PRD. One of the manufacturing bases is Foshan in the western PRD, with a concentration of household and electronic appliance manufacturing. The partnership will equip Foshan with world - class EPC/RFID infrastructure, knowledge and skills, and accelerate the adoption of EPC/RFID technology by Hong Kong enterprises in Foshan.

"We a re de l igh ted Wal - Mar t i s s u p p o r t i n g t h e R F I D a d o p t i o n

p rogramme," sa id Hu An Quan , d i r ec to r gene ra l , Economy and Trade Bureau of Chancheng District, Foshan. "Wal - Mart's extensive RFID experience is extremely important to help increase competit iveness of the local Foshan manufacturing industry in the global trade." Hu said the partnership will help accelerate RFID adoption and further promote F o s h a n a s a n i m p o r t a n t R F I D base for Guangdong. "RFID is an important technology that will help local industries enhance supply chain efficiencies. The technology will raise Foshan's profile in the international market. Over the next five years, the estimated demand for RFID tags in Foshan will reach to more than 600 mn, about 11,000 readers and RFID antennas."

The Foshan Government will create the necessary funding scheme, import and export trade policies and incentives to encourage RFID adoption. The programme will foster RFID technology development in Foshan and support the development of the PRD as a world - class manufacturing hub.

"The Pearl River Delta is important t o Wal - Mar t ' s g loba l sou rc ing s t ra tegy," sa id Simon Langford, d i r e c t o r o f Wa l - M a r t ' s R F I D Strategy and Transportation systems. "The adoption programme in Foshan represents a major step toward the expans ion of Wal - Mar t ' s RFID initiative in Asia in terms of business processes improvement."

Currently, 600 of Wal - Mart's largest supp l i e r s i n t he US a re t agg ing cases and pa l le t s o f some of the products they ship to RFID - enabled d i s t r ibu t ion cen t res and s to res . Langford said Wal - Mart is seeing significant improvements in inventory data accuracy, reduced out - of - stock and increased sales. Wa l - M a r t w i l l s h a r e i t s R F I D implementat ion experience with its suppliers in Foshan and provide support to their trading partners. This cooperation will help providers utilize EPC data to solve business challenges, help with marketing and promotion programmes, and the effective launch of new products.

EPC/RFID implementation in Foshan

Free ENCs from Chinese authorities M a r i t i m e a u t h o r i t i e s f r o m Guangdong, Hong Kong and Macao have jointly made the latest versions of e lec t ronic char ts for the area available for free, for a usage period of one - year, for jet boats shuttling between the three jur isdic t ions , DigitalShip (www.thedigitalship.com) reported on Jan 4.

China Communication News reports t h a t t h e G u a n g d o n g P r o v i n c i a l M a r i t i m e B u r e a u , t h e M a r i n e D e p a r t m e n t o f t h e H o n g K o n g Spec i a l Admin i s t r a t i ve Reg ion ( H K S A R ) , a n d t h e M a r i t i m e

Administration of the Macao Special Adminis t ra t ive Region (MSAR) have produced the 14 electronic navigational charts (ENCs) for free use by the more than 100 jet boats carrying passengers in the sea area near the Pearl Rivermouth.

T h e c h a r t s w i l l b e s u b j e c t t o a charge af ter the f i rs t year ' s f ree usage, though the authorities have declined to mention exactly what the subsequent charges will be.

Hong S ix iong , an o ff i c i a l f rom G u a n g d o n g , s a i d t h a t t h e n e w

charts will now provide seamless coverage of the sea area of the Pearl River mouth and will correct a few errors of separate electronic charts previously prepared by the three authorities

I M O r e g u l a t i o n s t o c o m e i n t o f o r c e t h i s y e a r w i l l r e q u i r e a l l h igh - speed craf t manufactured after July 1, 2008, to be equipped with ECDIS, with all high - speed vessels subsequently expected to carry ECDIS af ter July 1 , 2010. DigitalShip (www.thedigitalship.com)

e - LOGISTICS

38 Shippers Today

e - LOGISTICS

40 Shippers Today

Transport Intelligence (Ti), a research company, launched the China Supply Chain Intelligence (CSCi) portal on January 8, a web - based logistics knowledge portal that contains market intelligence and company profiles.

C S C i , a c c e s s i b l e a t w w w .ch inasc in t e l l . com, i s an on l ine r e s o u r c e p r o v i d i n g a c c e s s t o p ro f i l e s o f t he l ead ing a i r, s ea , road, freight forwarding operators as wel l as extensive research on the country, economy and logistics markets (including market sizes and forecasts). The portal provides all the information needed for a fundamental

u n d e r s t a n d i n g o f t h e c o u n t r y ' s transport and logistics industry, the companies which are present in the market, and its prospects for growth.

Information is constantly updated by Ti's teams of researchers based in Shanghai and Kunming. CSCi includes profiles of around 100 Chinese based companies across all the transport and logistics markets. In addition it includes informat ion on over 100 foreign companies with operations in China.

Additionally, CSCi contains market s i z i n g s a n d f o r e c a s t s o f m a j o r logistics segments (including express) and includes analysis of trends and developments in the market. To find out more about how CSCi contact

Transport Intelligence launches online China knowledge portal

Mike Nordmann on +44 (0)1666 511880 or email at mnordmann@transportintelligence.com.

Tr a n s p o r t I n t e l l i g e n c e L t d i s a company regis tered in England. H e a d q u a r t e r e d i n t h e U K a n d e s t a b l i s h e d i n 2 0 0 2 , Tr a n s p o r t Intelligence are providers of research and analysis dedicated to the global logistics and express industry. Ti has developed a range of market web - based intelligence portals, reports and tailored consultancy services. Ti products and services include daily and weekly news and analysis through Logistics Briefing. Access to Ti's research output is through the Global Supply Chain Intelligence website www.gscintell.com.

to communica te wi th the wor ld . "Normally people do not give the world of container shipping a second thought. Yet, without it, modern life would not exist in the way we know it," a statement on the web site reads. "In this context, the aim of CSIS is to encourage an understanding and appreciation in the wider world about the container shipping industry, and to show the benefits that it brings to our everyday lives."

Container lines launch informational websiteThe US Nat iona l Indus t r i a l and Transportation League newsletter, NITL Notice reported in its January 11 issue that 24 container shipping companies launched the Container Shipping Information Service (CSIS), an in i t i a t ive the ca r r ie r s sa id i s intended to provide information to the public, businesses and the media on their relatively unknown industry.

The container group said it also plans to openly address some common areas of general concern and talk about its role in addressing them – in particular, the environment,

globalization and security.

T h e g r o u p ' s f i r s t s t e p h a s b e e n t h e c r e a t i o n o f h t t p : / / w w w .s h ip s andboxes . com, a w eb s i t e tha t i t i s des igned to appeal to a broad audience, featuring useful information such a Did You Know section and a Jargon Buster. The site also will cover topical issues. A list of the 24 CSIS members is available on the web site.

The CSIS sa id i t was fo rmed in 2007 to give the global container shipping industry a voice with which

Dr Andrew Traill has worked in the freight transport arena for some twenty years, including 12 years at the Freight Transport Association (FTA) in the UK. In 2007, he established his own consultancy SV2 and, with partners, launched www.shippersvoice.com, a networking website aimed at building an international community of shippers. The Shippers' Voice continually gives updated information about legislation/regulations/proposals affecting trade as well as offering individuals

the chance to voice opinions, ask questions and generally interact with other shippers around the world. This year it will begin to publish quarterly Digests, offering in-depth analysis and insight as well as detailed demand forecasts on various trade lanes (provided by partner MDS Transmodal). The Shippers' Voice also promotes the work of Shippers Councils around the world.

42 Shippers Today

Four issues look set to dominate the international freight industry in 2008: congestion, competition, the environment and, last but not least, security.

Economic conditions (which are at best uncertain according to most pundits) will determine the scale of congestion and where it will strike hardest. Asia-Europe trade doesn't appear to be showing any significant long-term signs of a down-turn in volume despite tax changes and wage cost inflation increasing in China. Many ports have struggled through 2007 to keep the goods flowing and capacity will surely be an issue, particularly in the European container hub ports where MDS Transmodal port statistics show an average 15% growth in volume throughput for 2007.

The rapid introduction of ever larger container ships (latest data shows a 16% increase in shipping capacity through the Suez Canal for 2007, for example) will only serve to worsen the congestion at strategic transhipment points and put further strain on the hinterland infrastructure connections. While it is

not simple, and certainly not cheap, to rapidly increase or improve road and rail links or storage areas, it is possible to make much better use of the existing infrastructure. Shippers' Groups will continue to push the freight industry, manufacturers and retailers towards collaborative initiatives where improved communication – in both the personal and the IT sense – can help make smarter use of the existing infrastructure.

Competition will theoretically increase with the end of the conference system on the European liner shipping trades, but the impact is going to be far from clear and perhaps not truly felt until 2009. With most Asian shippers selling FOB and not in control of the freight negotiations, will carriers individually take advantage over Asian exporters by increasing or introducing charges for activities prior to loading, knowing that the exporter is unlikely to be able to pass this on to the buyer that has negotiated the sea freight contract? This is a fear among many Asian exporters and without a single conference secretariat to make representations to, they wonder how such

by Dr Andrew Traill, Managing Partner, The Shippers' Voice UK

charges might realistically be challenged.

Nevertheless, such practices will be far easier to expose now there is The Shippers' Voice website (www.shippersvoice.com) offering a facility for shippers to communicate (anonymously if they prefer) with others in the industry and in the supply chain. Shipping lines on the European trades in particular will be under very close scrutiny by both industry observers and competition authorities to ensure a competitive market exists – best shown, surely, by downward pressure on rates and charges, rather than upward!

However, assuming transport capacity (ships, aircraft, road freight vehicles, and trains) does not out-strip demand, in general, there is likely to be an upward trend in rates, as costs from congestion will be joined by pressure from environmental and security (anti-terrorist) requirements. Again, however, The Shippers' Voice believes collaborative approaches between shippers, carriers, agents and logistics service providers, port/terminal operators in air and sea, road and rail will hold the key to reversing the trend. Security measures and environmental awareness should increase transparency of operations and highlight inefficient practices. Remove these inefficiencies and the supply chain becomes leaner, more robust, and, as a consequence, unnecessary costs are driven out. This is the way forward.

Shippers' Councils around the world should aid collaborative initiatives that lower costs. The Shippers' Voice provides a facility to help increase awareness of these initiatives, connecting importers and exporters and the freight service providers who want to confront the issues and beat the inflationary consequences of doing nothing.

Prospects for the year ahead – pressures forcing up costs of transport

OCEANS

Charles Gary Wellins joined A P Møller/Maersk Inc directly out of Pennsylvania State University (BSc in Marketing Management) in 1985 as a Marketing Analyst in Manhattan, New York. He was recruited into the Maersk Inc training programme and transferred to Long Beach, CA where he was positioned as a Sales Executive, covering the Pacific and Atlantic trades as well as refrigerated commodities. In 1988, Wellins was transferred to Maersk Hong Kong Limited as

International Account Manager and in 1990 was promoted to General Manager of Mercantile Hong Kong and China (now known as Maersk Logistics). He did a brief tour with Sea-Land Hong Kong in 1994-96 as South China Regional Manager and then Director of Sea-Land China Logistics. He rejoined Maersk HK Ltd as General Manager of North and South America Services in 1996. After more than 11 years in Asia, he returned to the US in August 2000 to become Regional Director of the Pacific Northwest where his responsibilities included the Seattle, Washington, Portland Oregon, and Kenai, Alaska sales force. In July 2003, Wellins was promoted back to Maersk Hong Kong as VP Sales covering the Greater China Area (China, Taiwan, Hong Kong, Macau and Mongolia).

Other posts:

1997-98—Chairman, Transportation Committee, Hong Kong AMCHAM; Jul 03-06—Alternate Director, Hysan Development Co Ltd; Jul 03-06—Alternate Director, Lee Gardens Intl Holdings Ltd; Jan 04-06—Director, Commercial Management Ltd; Jan 04-08—Member, Hong Kong Logistics Development Council; Jan 06-08—Board of Governors, AMCHAM.

44 Shippers Today

2007 has been a turbulent year for the global economy. The subprime mortgage crisis has created turmoil in financial markets, oil prices have inexorably pushed towards new highs while the value of the dollar with equal determination has pursued new lows. At least two of these three situations have had – and continue to have – a direct impact on the ability of carriers to make ends meet. Freight is settled in dollars while landside costs

Shipping in the age of the

$100 barrelby Charles Wellins, VP Sales,

Greater China Area, Maersk Line

are, most often, settled in currencies appreciating against the dollar. Of more significance though, the cost picture of carriers has been radically transformed as oil prices have approached and surpassed the US$100 mark per barrel. Indeed, the price of bunkers has grown from less than US$150/ton in 2004 to almost US$375/ton in 2007. The proportion accounted for by bunkers of total vessel cost now exceeds 35%. To put this into

perspective: industry profits in the first half of 2007 reached US$40/FEU. By comparison bunker prices have increased by US$180/FEU through 2007 alone!

The vola t i l i ty in fuel pr ices are , obviously, a major headache for carriers and perhaps the largest challenge to the industry at this particular point in time. It is a situation that requires cooperation and understanding between carriers and shippers if the volatility and unpredictability of fuel markets are not to wreck havoc amongst carriers, possibly prompting carriers to withdraw from some trades distorting finely tuned supply and demand balances and reducing the choices available to shippers.

Circumstances demand that action is taken to mitigate the effects of soaring bunker costs. One response by carriers has been to reduce fuel costs by slow steaming and reducing the number of port calls. This has had some effect, unfortunately also on carrier networks, but far from sufficient to offset a dramatically altered cost picture. Something must be done.

Other industries, from airlines to cab dr ivers in Guangzhou, have implemented fuel surcharges to share the risks and added costs with their clients. Likewise, a rational model is required for the liner shipping industry. In Maersk Line, we believe the solution is the introduction of a 'floating' bunker adjustment factor (BAF) following the ups and downs of fuel prices. A floating BAF will go far to take out the volatility of freight rates and towards creating transparency towards shippers.

OCEANS

Industry profits in 1H 2007

reached US$40/FEU….by

comparison bunker prices

have increased by US$180/

FEU through 2007 alone!

Instead of carriers having to add a separate premium to the freight to cover risks on the significant bunker price fluctuations, a floating BAF following bunker price fluctuations will ensure that the services offered to shippers to a higher degree reflect the actual cost of transportation at any given time.

We have noted that in some trades it has proven easier to explain and argue for a floating BAF and therefore the degree of application varies (from trade to trade). Many shippers realize that the concept is right and that they need to work together with carriers towards mitigating the risks of wildly fluctuating bunker prices. The floating BAF is important to the overall stability and health of the industry – and to everyone's benefit. We will be looking forward to discuss the floating BAF with our business partners in Asia and are confident that we in 2008 together will be able to find a solution minimizing the

perils of unpredictable fuel markets.

In conclusion, a few words on how we anticipate the market to develop in 2008: Generally, we predict a healthy demand growth with large regional

differences. The slowdown in the US economy is counter-balanced by European growth resulting in continued high demand in the Asia-Europe trade. Currently our expectations are in

l ine with the predict ions of most a n a l y s t s f o r e c a s t i n g g r o w t h i n 16-20% range (total trade average). Capacity increases are coming into the trade, however, we expect this to be moderate as carriers due to fuel price increases reduce their service speed and incorporate more buffer time to account for port congestion. Overal l , we es t imate the market wil l global ly add approximately 13% capacity compared to 2007. This will result in a supply demand scenario which will continue to be fairly balanced, however, there is no doubt that the growing costs and trade imbalances in general will put financial pressure on our industry.

We are looking forward to an exciting--and chal lenging—new year and wish you all a happy, healthy and prosperous 2008!

45Shippers Today

OCEANS

4� Shippers Today

For several years now I have published a "year-ahead container shipping forecast" for Shippers Today. The accuracy from a rear-view mirror perspective has likely been no more than 50% and some would say even less. Forecasting is also often a game of manipulating perceptions. Open ended statements and vague predictions can be read back to mean something closer to what happened with 20/20 hindsight. But numbers don't lie, right? Unless, of course, they get re-stated. Yet, ultimately, the more the data series, the better the process of triangulation becomes. And the more the disclosure, the faster resolutions and conclusions can be reached. Forecasting is more a process and an exercise in continual dialogue with the market than anything close to science.

2007 was another year of surprises. Volumes from Asia to the US were far weaker than expected. Expectations were 7-10% (We were 7-8% in 4Q06), but the actual growth rate is coming in closer to zero based on Oct/Nov '07 data, after decelerating through our 4% growth levels by mid-07. The irony was that the market talked 7% when growth was closer to 4% in mid-07, and more recently has talked mid-single digit when it was zero.

Asia to Europe surprised to the upside in 2007, and is likely to come in at

+19%, after expectations in 4Q06 o f 15% growth in 2007 . Bu t the other surprise in 4Q07 could be the deceleration toward a 15% run rate from the 21% in 1H07.

The combined run rate out of Asia (US and Europe combined) in 4Q07 likely was well below 10%, which is starting to take us back to 2001. The risk is that this low-end growth is repeated not only in 1Q08 but throughout 2008. It is still too early to tell.

Asia-US Trades

Up to 2007, the Transpacif ic has remained the most important market in the world. And it has not been doing too well. Behind a marketing push by container lines to hold the line on pricing, carrier executives have talked openly of slashed capacity and flat and even negative volume growth.

The major success story in 2007 was getting customers to pay for higher intermodal pass-through charges. Also Maersk's generous capacity cuts also helped the market for a change (ie, a reversal from the negative impact seen from Maersk-P&ON changes in the Asia-Europe trade in 2005). Maersk in late 2006 and early 2007 took out about 20% capacity in this trade.

Growth has decelerated throughout 2007 and we are now looking at about zero growth for 2007E based on poor 4Q07 data

The major disappointment was that volumes to the US West Coast have fallen significantly short of 2007 forecasts which originally called for 10% growth (market view end-06), and later 7-8% (our view end-06 and market view early-06) – and more recently we had been looking for 2-5% growth. Based on recent data, growth could be around zero for 2007. For 2008E we are beginning with an estimate of 2% growth based on a mild recovery toward end-2008E. But volume shifts remain volatile.

The other big change occurring is that 2007 is setting up to be the first time in a decade that export growth has grown more substantially than import growth. This is still early days for this trend. But now that the US dollar has held its weaker levels, its export competitiveness at least in some products has worked its way through to significant export jumps. Products leading the rebound include cotton, soybeans, grains and metal scrap. Utilization remains so low on the export trade overall that a return to profitability on US outbound to Asia may need two more years of good growth.

But then again this depends on strategy. One Asia carrier with a strong presence in refr igerated containers makes about 10-15% of its profit from this division, and export of fresh fruits and vegetables from the US to Asia is one value added driver of growth.

Another, perhaps less noticed rebound

by Charles de Trenck, Head of Regional TransportCitigroup Investment Research

charles.detrenck@citigroup.com

Container shipping outlook 2008E

OCEANS

47Shippers Today

has been higher volume growth in US to Europe, where a weaker dollar has begun to drive export growth. Containerisation International and others have discussed these developments recently.

Transpacific to US rates

Based on an understanding (rather than forecasting) of demand, also based on capacity growth as well as shifts in costs, US$ Rev/TEU tracking is the other part of the puzzle.

In the Transpacific 2H07 rates remain

several percentage points below 2H06 (for instance, as seen by a weekly series published by the JOC based on submissions from Drewry), despite fuel and other costs being higher. This means that effective rates ex-surcharges are hurting. At the same time, the rates are not as weak as they might have been expected given the deceleration in trade, partly due to damage control early in 2007, and partly due to the emergency nature of record high bunker costs.

We think 2008 will follow a similar

trend of deterioration within overall efforts at damage control, and yet should also see a worsening of the downturn. Weak demand and low rates follow on from the continued unraveling of the US property bubble.

The 3Q07 all-in rate on the Transpacific Eastbound, as t racked by CI and released in late November 2007, came in at -0.5% or US$1,707/TEU. This rate includes the higher fuel costs and reflects some significant degree of pain which the container l ines will do their best to redress in 2008. Despite the recent news that CSCL has joined the TSA and that the TSA now represents about 80% of capacity in the Transpacific Eastbound, we believe 2008 will be another difficult year.

As of November 2007, carriers were scrambling to go back to customers for emergency fuel surcharges (ie, to recover part of what was not covered in annual contracts). The effect for Nov-Dec 2007 was expected to add about $20/TEU to nominal rates, though carriers were generally believed to be operating close to or in the red in 4Q07 in the Transpacific.

A s i a - E u r o p e t r a d e s ( a n d contributions to the balancing act)

The Asia-Europe trade, combining the North Europe and the Mediterranean, should in 2008 be the largest trade in the world by box volume, if, as expected, 2008 trade Asia to Europe grows more rapidly than to the US. Because the run rate of growth had been at 20% levels for most of 2007, congestion was feared in many North Europe ports.

In August and September, overall growth slowed to about 16-17% and slowed even further in October, before rebounding to 19% in November. We had been expecting base case growth to hold 15% levels into 2008, which we have considered to be the average case for the trade several times in 2006-07. But data is now pointing to the

Figure 1. Transpacific Asia to US '000 TEU Monthly Profiles, 2004-2008E

Comparing overall Transpacific volumes to US West Coast port volumes offers a sanity check on actual growth rates, given debates on the accuracy of some series in some months (ie, the debate on PIERS data this year)

US export recovery just beginning (but will take time to have an impact on profits)

Source: PIERS; Citi Investment Research

Figure 2. Asia to US TEU Volumes and US West Coast TEU Volumes, YoY Percent Change

Source: Ports; PIERS; Citi Investment Research

OCEANS

48 Shippers Today

run rate slowing to a shade lower, perhaps a 3-14% level. To be sure Asia-Europe growth in 2008E will remain above that of the Asia-US growth.

Interestingly and ironically the real driver of trade growth has been very strong East, or new Europe, and demand for China made goods in East Europe. Growth into the Med has been even stronger than into North Europe, partly because of growth into the Black Sea area.

As mentioned, over the last few months growth has slowed a shade, and this could be because of some softening of demand in old Europe. New Europe, particularly Russia, should remain relatively strong, though whether it maintains 60% growth levels may be another issue.

The key question, at a time when most new capacity is expected to make its way into the Europe trade, is 'what Asia-Europe trade growth rate do East – West trades need for the market to remain relatively stable'?

Common wisdom has it East-West trade will remain relatively stable if Asia – Europe holds +20% levels, but show greater signs of weakness if US inbound trades remains weak and Asia-Europe volumes show growth declining toward 15%. If Asia-Europe dips below 15%, this could be the real time to worry.

Asia Outbound growth quick calculation

A quick and dirty check is if Asia-Europe (outbound) shifts to a run-rate of +15% from +20% while the Asia – US runs at +0-4%, this generates about +8-9% combined, keeping in mind that the Transatlantic has been slower than the two Asia Outbound trades for a long time. This of course is not a scientifically adjusted number. But then again neither are the official numbers.

Average growth around 9% for Asia Outbound would represent a decline of perhaps 2-4% from recent run rates and perhaps as much as 5-6% from peak demand growth levels (delivered in a more balanced fashion) during the 2003-04 rebound, when annual container demand growth was a high as 15% on what we could call the 'core East-West' lead legs (Asia-Europe, Transpacific and Transatlantic). In recent months our estimates for 2007-08 global growth have drifted lower by about one percentage point, with our 2008E global growth now standing around 8.1%. Market expectations continue to hold around 10% levels, though many have not fully adjusted for lower 4Q07 run rates.

Fuel, demand and prices

High fuel costs, with bunker in January

2008 at the $500/ton level, affect demand through reduced buying power given tighter spending abilities of consumers, while also affecting the nominal pricing of $/TEU rates (higher), particularly in the stronger Asia-Europe trade in 2007. In the Transpacific, container lines have reported difficulties passing on higher fuel costs. Many contracts in the Transpacific in fact have a flat or fixed or semi-fixed fuel costs written into the contract.

In 2007 in the Transpacific, the container lines have had more success recovering higher freight costs from rail than they have had catching the moving target of continuously rising bunker. In Asia-Europe lines were better able to recover higher fuel costs through rate hikes, at least for oil through the mid-70s (but not clear at the $90-100 oil level as yet). Oil at $90-100 in 2008 is something that shipping lines are generally un-prepared for. For the moment we are working off of an average of about $415/tn for 380cst bunker, based on fuel costs declining from their peaks but averaging more than the $346/tn average for Rotterdam 380cst in 2007 (this has raised our Rev/TEU base case assumptions a little as well to -3% levels in 2008E).

Hedging is often considered a key strategy to minimize the impact of higher fuel costs, which in nominal terms range up to about 20-22% of costs currently, and up from 7% 4-5 years ago. In many cases this has added $100/TEU or more to the nominal US$ rev/TEU tracked by Containerisation international.

Hedging for many companies can cover about half of fuel costs, on the view that the other half can be covered by surcharges. This is the theory.

The practice is that not all carriers hedge ha l f the i r cos t s and in an environment of rising prices, and the setting of surcharges lags the increase in costs as incurred. Thus in a rising oil environment, tail chasing remains an

Figure 3. Container Growth Out of Asia, 2006-2007 (Nov-Dec est)

Source: PIERS; FEFC; Citi Investment Research

OCEANS

activity that cannot be avoided.

Of the carriers that seek to hedge about half their costs, this may be more true at some and not other parts of a cycle. In 2004, 2005 and even 2006 it was much easier to hedge during earlier parts of oil's upward trajectory.

One can argue that any one period could and should be treated like any other period. But the reality is financial managers – as share investors might too – look at different parts of a chart differently. The higher the price, the higher the risk. And the risk of entering into an oil derivative designed to make money on the way up when the price of the underlying is already high is higher than when it was lower. Hedge too much at a high point, followed by a leg down, and one can generate a loss, when an uncovered position would earn you money.

Another feature of oil hedging contracts is that they use collars and caps, designed to hedge oil within a certain trading range. When oil trades out of a band, the oil hedge loses its effectiveness.

The point is hedging appears riskier, and/or less effective, in 2007-08 than

it did earlier in the cycle. And because hedging in 2007 has been riskier, the average container line has generally been more negatively impacted by higher fuel costs in 2007-08 than in 2005-06, though experiences vary greatly as well.

Slowing vessels and the impact on capacity

Container lines began talking of slowing container vessels in the Asia-Europe trade in 2005. In 2007-08 it appears this has been implemented with some success, with several loops having increased from eight to nine vessels. The impact is higher vessel capital outlays of one extra vessel per loop in return for lower fuel costs for the nine vessels in the loop as a result of lower fuel consumption at slower speeds. We also believe this was combined with some strategic vessel withdrawals by Maersk and longer slack season capacity reductions by the major alliances. Between these two effects, the approximate 5-6% excess of ships delivered over demand growth was effectively absorbed in 2007 (at least based on market perception).

We performed a study on vessel speeds of a carrier and found significant speed

variances over the entire year, but also a distinct slowing in recent months, which coincided with the rise in oil prices to $90+/bbl levels in 2H07.

Based on industry discussion, and in our view, some Asia-Europe services have increased vessels from eight to nine per loop, but this has not been standardized (and could be subject to shifts based on fuel prices), and many debates exist. Some comments in industry have also been made that some vessels missed terminal berthing windows, which contributed to congestion.

Yet, although many are operating nine vessels in a loop, most continue to order batches of 8x13,000 TEU ships rather than 9x13,000TEUs. This tends to show how driven the industry still is by owner/CEO decisions without the same consideration to operational practicality.

In many ways, we also now may be seeing that the so called standard Korean 8,400TEU design isn' t as efficient as first thought and quite a few people may now be getting their fingers burned by seeing the so called jump to 8,400TEU as a mistake, as may some of the 12,500-13,000 TEU

Source: CI; Drewry; Clarkson; Citi Investment ResearchCIR Core basket = Evergreen, Yangming, APL, OOCL, Hanjin & CSCL (2000+)

Figure 5. Long Term Container Demand and Supply Versus Rates, GDP, Bunker, Vessel Charters, 2000 – 2010E

2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E

ContainerRates$/TEU(unweighted) 1,236 1,135 1,032 1,181 1,244 1,302 1,280 1,284 1,241 1,195 1,218

Containerratesgrowth(%) 1.9 -8.2 -9.0 14.5 5.3 4.6 -1.7 0.3 -3.3 -3.8 2.0

AsiaOutboundRates$/TEU 1,817 1,544 1,340 1,661 1,821 1,822 1,610 1,699 1,610 1,519 1,567

AsiaO'boundratesgrowth(%) 2.1 -15.0 -13.2 24.0 9.7 0.0 -11.6 5.6 -5.3 -5.6 3.1

Container3500TEUvesselcharter%chg 17.0 -24.0 -27.3 79.8 38.8 7.9 -31.1 22.0 -10.0 -10.0 5.0

Rev/TEU$refonly(CIRcorebasket) 1,146 1,031 960 1,135 1,237 1,303 1,225 - - - -

Cost/TEU$refonly(CIRcorebasket) 1,077 1,006 934 987 1,025 1,085 1,157 - - - -

BunkerRotterdam$/tn380CST 138.4 117.4 133.7 152.9 155.3 234.0 293.0 346.0 415.0 370.0 330.0

BunkerRotterdam%chg 48% -15% 14% 14% 2% 51% 25% 18% 20% -11% -11%

Containerdemand/TEUslotmoves(%)(1) 12.7 -0.2 11.2 16.9 13.6 12.1 10.8 9.5 8.1 8.9 9.3

WorldGDPgrowth(CIRNov07)(%) 4.7 1.5 1.8 2.9 3.8 3.4 3.9 3.7 3.4 3.7 -

ContainertoGDPmultiplier(X) 2.7 -0.1 6.2 5.8 3.6 3.6 2.7 2.8 2.4 2.4 -

Containerscrappingin%TEUfleetest 0.3 0.6 1.1 0.4 0.1 0.0 0.2 0.2 0.4 0.6 0.3

TEUStandingFCCFleet'000TEUadj 4,847 5,432 6,004 6,538 7,178 8,117 9,458 10,929 12,503 14,227 15,984

Fullycellularcapgrowthex-scrap(%)(2) 9.7 12.1 10.5 8.9 9.8 13.1 16.5 15.6 14.4 13.8 12.3

Simplecapacitylessdemand(excessinppts)(1)–(2) -3.0 12.3 -0.7 -8.0 -3.9 1.0 5.8 6.1 6.3 4.9 3.0

TotalTradeTEU/StandingTEUSlots(X)=slotturnover 14.5 12.9 13.0 13.9 14.4 14.3 13.6 12.9 12.2 11.6 11.3

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49Shippers Today

50 Shippers Today

unit decisions as well.

The optimal efficiency for standard designs are 10,000 and 15,000, not 8,400 and 13,000 in the opinion of some operators1. So far the real 'dogs' are the first generation super post-panamax vessels, in the eyes of many.

Looking to 2008

Average trade growth is slowing from an Asia Outbound perspective.

Global TEU trade volumes could in 2008E see growth around 8.1%, down from about 9.5% in 2007E, based on some deceleration in Asia-Europe outbound trades and continued softness in Asia to US trades.

In general terms, we have seen the run rate of growth out of Asia to the US

and Europe combined shift from a 15% growth level to about a 10% level (or less).

And though the Asia Inbound trade, particularly the US return leg to Asia given the weakened dollar, is set to continue rebounding, this phenomenon at first will be part of a long process of re-balancing trade flows and will not contribute to the type of pressure on capacity that leads to higher rates.

The one year ahead forecast can usually be done with a little bit more certainty than a stab in the dark by the time we reach the 4Q of the target one year forward. And as we get into the 1Q (and out of the Chinese New year) of the forecast year, our understanding develops further. Typically forecasting more than one year forward remains a dark art in terms of demand, although physical capacity at a macro level remains a

known quantity some three years out.

We see capacity growth in 2008 about two percentage points off the 2006 peak – but recall there is still some accumulated over-supply sloshing around only partly used (just ask Maersk). If fuel costs came down dramatically (ie, vessels could speed up a little), the BDI normalized (ie, some partly cellular ships shifted back to some containers), or Maersk and/or alliances decided to bring back marginalized tonnage, these could all prove additions to the fleet on top of the 14% capacity delivery run rate in 2008-09.

Therefore, absent further clues to 2008 based on November 2007 information, and until we get into the first 2-3 months of 2008, Asia to US TEU volume growth is looking to run about 2%, with some downside risk at present.

Early guidance from some large retailers to container lines appears to be around zero growth – and potentially slightly negative – for the retailers, which appear to be exposed to high oil and the deflating housing bubble. For the moment we would stick to a just below consensus expectation of about 14% growth for Asia to Europe for 2008.

We will have more to say for other smaller trades eventually, but no other significant trade is expected to perform better than the Asia to Europe trade. Intra-Asia is expected to hold on to some of the gains made in 3Q07, when fuel costs were able to generally be passed on. But capacity flowing in from the cascading effects of mid-sized ships being further deployed into Intra-Asia will remain a concern.

Vessel supply outlook update

Dur ing 2007 the con ta ine r sh ip orderbook accelerated again back above 60% of the fully cellular fleet (or about 50% of the enlarged fleet, though most partly cellular ships have

Source: CI; Citi Investment Research

Figure 7. Fleet on Order by Carrier, May '07 Vs Nov '07

Source: CI; Citi Investment Research

Figure 8. Container US$/TEU Rates Updated for 3Q07, 1994 – 2010E

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been used for bulk transport in 2007). This will become a greater concern at the back end of 2008 when deliveries will start to accelerate again. For the moment, concern should shift to the structure of demand deceleration.

APL has been back at the orderbook during 2007 and this shows up as APL catching back up to just below the average of the fleet on order as a percent of orderbook. Otherwise, the usual suspects (CMA, COSCO, Zim, etc) remain the orderbook leaders in terms of their fleets on order. Yang Ming has accelerated a lot over the last few months, although some is also data which may have been entered a little late. Nonetheless, Yang Ming surprises by having an aggressive orderbook out to 2012. Other late bloomers include COSCO and Zim.

2009 and beyond (low trust factor for forecasts)

The current pattern of deceleration into 2008 may be focused on 3Q07 forming a top for acceleration in the Asia-Europe trade, while the US experiences one more leg down in trade growth from a deceleration that in retrospect should have begun in 4Q06 (with a brief respite in 1Q07).

We would expect this deceleration pattern to follow through into end 2008, but potentially form some sort of bottom in 2009. The process of inflation, oil price and other commodities slowing their advance and potentially coming off their highs, taken against GDP and the strength of the consumer in 2009, will be a significant part of the influence on the bottoming process.

Looking at run rates in Transpacific Asia to US as well as US port and US rail data series, but ultimately also based on how bad the US housing and consumer downturn of 2007-08 truly is, points to 2008 simply following on from 2007. But going into 2009, the base, on the demand side, should find

Rates & cargo grth 0.61

Rates & world GDP 0.30

Asia outbound rates & cargo grth (from ’95) 0.40

Asia rates & Avg rates (from ’95) 0.70

3500 TEU charter and Asia rates (from ’95) 0.73

3500 TEU charter and Avg rates 0.87

Rates & capacity growth -0.33

Asia Rates & cap excess (from ’95) -0.67

Rates & cap excess -0.63

Figure 9. Correlations Reference, 1990 – 2010E

Source: Citi Investment Research

opportunities to bottom, leaving room for rebounds by 2010. But forecasting the bottom and therefore the rebound pattern remains subjective at this stage.

We track correlations for many of our data series for the period 1990 – 2010E. Many of the relationships are not very strong, however we continue to find a positive relationship between US$/TEU rates and cargo demand, rates and vessel charter costs. We also continue

to find negative correlations between nominal excess supply and rates.

One final trend we note for 2008-09 is an expected decline in vessel financing, particularly for 10,000+TEU vessel types for 2011 delivery, with certain European owners likely to be more affected. More specifically, owners who have relied on structured German financing should see a drying up of funding for new vessel projects.

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51Shippers Today

52 Shippers Today

S h i p p i n g l i n e s c o m p r i s i n g t h e Transpacific Stabilization Agreement ( T S A ) ( w w w. t s a c a r r i e r s . o r g ) announced in 4Q 2007 their 2008-09 revenue/cost recovery program, saying that the program addresses rising operating costs expected this year. Other factors cited include freight rates that continue to lag operating costs; limited cost recovery in 2007-08 that has added to current rate pressures; record fuel prices making floating bunker charges a top priority; uncertainty over the outcome of labor negotiations on the US West Coast that wil l put pressure on US East Coast services; and transportation infrastructure that remains a concern going forward.

TSA said the voluntary guideline revenue/cost recovery program for the 2008-09 contract season, which is subject to all applicable filing and consul ta t ion requi rements , addresses rising operating costs in the coming year, including record marine fuel prices in 2007-08. In combination with further steps to be taken in 2009-10 contracts, it also will establish over time a level of profitabili ty required to meet anticipated asset and service expansion in the Asia-US freight market.

"We've already seen s ignif icant carrier redeployments that reflect the deteriorating economics in the high-cost transpacific market, relative to other trades," said TSA chairman and American President Lines Ltd CEO, Ron Widdows. "Given cost increases expected through the end of 2007 and into 2008, and the potential for service disruptions, there's an obvious

and compelling need for a viable rate structure that encourages adequate carrier reinvestment."

Elements of the plan proposed by TSA include:

* Freight rate increases of US$400 per 40ft container (FEU) for US West Coast port-to-port and door cargo, and US$600 per FEU for all other traffic, including intermodal and US East Coast all-water shipments.

* Restoration of a floating bunker fuel surcharge–broken out from base rates and adjusted on a regular basis to reflect bunker fuel price fluctuations–in all contracts that have had bunker surcharges mitigated, capped or folded into base rates.

* A US$400 per FEU peak season surcharge wil l be applied to al l shipments on TSA member l ine vessels during the period of June 1 through October 1, 2008, subject t o a d j u s t m e n t s r e l a t i n g t o t h e timing, duration and strength of the 2008 peak.

TSA said their member lines also in t end to modi fy the t iming o f service contracts, extending 2008-09 con t rac t s by an add i t iona l two months, to expire on June 30, 2009. This will give shippers the benefit of two additional months at 2008 contract rates, and will also mean that future 12-month contracts will have July 1st start dates.

Finally, carriers said they plan to include provis ions in upcoming contracts that will enable them to

recover increased West Coast trucking costs which may arise from legislative and/or regulatory changes, such as implementation of the transport worker identification card (TWIC) and the proposed Los Angeles-Long Beach harbor truck plan.

A c c o r d i n g t o J S L e e , s e n i o r executive VP of Hanjin Shipping Co Ltd and a member of TSA's executive committee, transpacific container lines still anticipate a 7% to 8% increase in basic operating c o s t s a p a r t f r o m f u e l– i n l a n d rail and truck charges, container handling at destination US ports, and repositioning of empty containers back to Asia after cargo has been del ivered a t US inter ior points . He added that carriers also must address increased costs that were not recovered in current contracts. Beyond tha t , he sa id , res tor ing carrier revenues to sustainable levels of profitability cannot be done in a single year, and the market should be prepared for a continuation of this initiative in 2009-10 contracts.

A T S A s u r v e y o f m e m b e r l i n e operating costs relative to freight rates shows current rate levels well below break-even costs for nearly all carriers on most route segments. A t t h e s a m e t i m e , b u n k e r f u e l prices rose by 34% during the first nine months of 2007 alone, from an average US$295 per tonne in January to an average $395 per ton during September. An internal TSA survey reveals that this $100 per ton difference in price–taking into account typical vessel capacity, actual lift based on effective capacity and

Transpacific carriers' outlook for 2008

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53Shippers Today

utilization, fuel loading prices, fuel consumption per day, sailing time and a pro rated share of fuel cost for repositioned empty containers-- t rans la ted in to a $132 mi l l ion increase in aggregate fuel costs paid by TSA lines in September over January to move the same volume of freight. In October fuel prices reached record levels and an average for the month of $436 per ton, suggesting an aggregate fuel bill of about $150 million higher than in January 2007.

I n c r e a s e s i n t h e T S A b u n k e r su rcha rge , f rom $455 pe r FEU in J anua ry to $680 pe r FEU in October, only partially addressed these rising costs, due to the lag time in calculation and to the pace and extent of fuel price increases, the TSA said. And in a number of contracts, caps and other restrictions even further prevented meaningful cost recovery as fuel prices spiked throughout 2007.

"Lines will, of necessity, be pressing the issue of a full, floating bunker charge very seriously in upcoming contract negotiations," Widdows explained. "We understand that this is a major item in the overall rate structure and that shippers are looking for pricing stability over the 12-month contract term. But the market must understand that fuel prices are far too volatile, and ocean carriers are far too exposed to fuel cost fluctuations over a 7,000 to 10,000-mile, 12 to 18-day one-way sailing, to lock in a single price for a year." Noting that airlines, railroads and truckers all collect full, floating fuel surcharges, he added that container lines are particularly vulnerable to fuel cost impacts, and failure to recover those costs amounts to a hidden subsidy imposed on them. "At current price levels, fuel is no longer just another cost component," Widdows stressed. "We're at a point where service levels at minimum and,

for some carriers, financial viability are threatened if we are not able to share these costs more equitably with the customer base. It 's not a sustainable situation."

S e r v i c e l e v e l s a n d o p e r a t i n g f l ex ib i l i t y w i l l be pa r t i cu la r ly important in the coming contract year. Independent industry analysts forecast 7-9% cargo demand growth in 2008 – the same or slightly higher than predicted for 2007. TSA anticipates new transpacific vessel capacity to increase by 5.2% growth among TSA members, and 6.3% across the entire trade, and potentially less in the event that there is not sufficient improvement in the economics . Allocations of new capacity are being driven by the high-growth Asia-Europe and intra-Asia trade lanes, with smaller ships cascaded out of those trades accounting for much of the new capacity scheduled for the transpacific.

"Despite positive economic signs such as r ecen t US employment figures and 3.9% GDP growth in third quarter 2007," said TSA executive

administrator Brian Conrad, "cargo d e m a n d i n 2 0 0 8 - 0 9 m a y w e l l moderate further amid uncertainty in the housing and credit markets. It is also clear, however, that carriers wil l be seeking out markets and deploying vessels and equipment where the economic condi t ions are most favorable, so we see an continuing healthy supply/demand balance in the transpacific even at somewhat lower levels of growth, should that scenario develop."

Widdows added that shippers are already looking to their carriers t o h e l p t h e m a v o i d p o t e n t i a l delays in 2008 as longshore labor negotiations intensify on the US West Coast toward a July 1st contract. Asian terminals are additionally e x p e r i e n c i n g c o n g e s t i o n , s a i d Widdows, and delays as demand outpaces expansion throughout the region, even though there has been some reduction in the pace of growth in volumes to the US. "There will be many variables affecting service and schedules next year, making service choice and contingency planning all the more important," he predicted.

TSA is a research and discussion forum of 14 major container shipping lines serving

the trade from Asia to ports and inland points in the US.

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Orient Overseas Container Line ( O O C L ) a n d Ya n g M i n g L i n e p lan to l aunch a new con ta ine r

shipping service providing direct links between China, Pakistan and India, from January 17, 2008.

Hong Kong-headquartered OOCL s a i d t h e n e w o p e r a t i o n , c a l l e d China Pakis tan Express (CPX), wou ld upg rade i t s r ou t e s f r om an existing transhipment service via Singapore to a direct service f r o m C h i n a t o P a k i s t a n a n d Mundra (India), providing faster t r a n s i t t i m e s . " T h e n e w C P X service will also offer additional f r e q u e n c y, e n h a n c i n g O O C L ' s

comprehensive network between C h i n a a n d t h e I n d i a n s u b -continent," it added.

T h e p o r t r o t a t i o n w i l l i n c l u d e Shangha i – Ningbo – Shekou – Singapore – Karachi – Mundra – Penang – Port Kelang - Singapore – Hong Kong - Shangha i , f o r a 35-day round tr ip. Five vessels, each with an effective capacity of 1,200 TEUs, will be deployed on the service, which will be jointly operated with Taiwan-based Yang Ming Line.

Asian lines to launch China-Pakistan express container service

N Y K a n d H y u n d a i M e r c h a n t Marine (HMM) have come to an agreement to opera te jo in t ly in the container trade between Asia, South Africa, and the east cost of South America.

The new service, named the "New H o r i z o n E x p r e s s " ( N H X ) , w i l l commence ope ra t i ons f rom the second half of April. It will replace NYK's cur ren t New Good Hope Expre s s Se rv i ce (NGX) , wh ich NYK has operated together with Maersk Line and Hamburg Süd.

N Y K a n d H M M a r e a i m i n g f o r better integrity of schedules and fast transit times to main markets in Asia, South Africa, and the east coast of South America.

NYK and HMM collaborate on new service

Masato Katayama, chairman for NYK Line do Brasil Ltda, announced, "This new configuration should greatly he lp NYK improve i t s cus tomer service in the Asia to South Africa to South America trade, and moreover, allow NYK to build on its tradition of service to these areas."

S e u n g I n Ya n g , V P o f H M M ' s Container Business Department in Seoul continued, "We are delighted to announce this brand new premium service, which will allow HMM to enthusiastically participate in the fast-growing South American market as we work to meet our customers' diverse needs."

The New Horizon Express will be a weekly fixed-day service operating a

total of 10 vessels, eight from NYK and two from HMM, with a weekly capacity of about 2,500 TEUs.

T h e p o r t r o t a t i o n w i l l b e g i n a t Shanghai and continue as follows:

Shanghai - Ningbo - Hong Kong - Singapore - Durban - Santos - Buenos Aires - Itajai - Paranagua - Santos - Itaguai (Sepetiba) - Singapore - Hong Kong - Shanghai

Other main por ts in Asia wi l l be covered by feeder connections.

N Y K a n d H M M w i l l u s e t h e i r global networks to enhance their locally focused capability of serving t h e n e e d s o f c u s t o m e r s i n f a s t -growing markets.

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PORTS

A tale of two regionsSouth China and Yangtze River Delta terminal supply and demand by Jonathan Beard, managing director,

GHK (Hong Kong) Ltd

A key challenge for policy makers is to ensure adequate capacity and competition in port services, without generating dramatic over-supply: "white elephants" are neither good for the economy nor the environment. Meanwhi le , fo r opera tors and investors, there is clearly a desire to ensure maximum utilisation of facilities and avoid a financially destructive price war for cargo–typically a by-product of significant surplus capacity. Shippers and shipping lines on the other-hand may welcome such a scenario.

Probably nowhere on earth has the development of container terminals been so rapid as China. The supply side response and the ability to quickly introduce additional capacity, both in terms of new-build but also via productivity enhancements at existing terminals have been phenomenal. These issues are starkly highlighted

in the development of port facilities servicing two of China's key economic regions–South China (Guangdong Province plus Hong Kong) and the Yangtze River Delta (YRD). However, as this article suggests, the two regions may be heading for contrasting futures in terms of the projected balance between supply and demand for terminals.

Before presenting the analysis , a word of warning. Forecasting future terminal capacity is far from straightforward. Even assuming that development programmes and Five-Year Plans are adhered to, the capacity of any given facility at any point in time may vary according to a variety of factors. These include: operational productivity; the ratio o f 2 0 f t t o 4 0 f t c o n t a i n e r s ; t h e average number of container moves (containers unloaded and loaded) per vessel call; the vessel size mix;

the ratio of transhipped to direct (land or inland waterway) containers; throughput variation during the year ("peaking"); the effects of working close to capacity on customer service and satisfaction; etc.

With due regard to these caveats, Figure 1 shows, for South China, the balance between the supply of container terminal facilities (presented as total capacity) and demand - the "cargo base". The trend over time for capacity shown in Figure 1 assumes that capacity increases at a uniform rate between the benchmark years identified in various development plans. In truth, this may not be the case as additional capacity may arrive in lumps.

T h e " c a r g o b a s e " m e a n s t h e in te rnat iona l ca rgo ( inbound, outbound and empties) generated by the South China economy. It should be noted that in addition to South China international cargo, ports may also handle transhipment cargo. Moreover, some of the capacity within South China, notably Nansha and Guangzhou is primarily occupied with feeder traffic – this throughput would not be included within the South China international cargo base projections. Nonetheless, the key point is that South China appears to have moved from a position of highly constrained CT supply – i.e. when Hong Kong was the only major container port - to one of surplus capacity, which is likely to continue until the end of the next decade.

Some of the additional capacity may be soaked up via handling transhipment (and feeder) traffic, however the

Dr Jonathan Beard is managing director of GHK (Hong Kong) Ltd that is part of the global GHK Group, a leading logistics and economic development consultancy. Financial advisors, potential investors, operators and governments regularly seek his opinion on logistics policy and development. Dr Beard was lead author for the Hong Kong Port Master Plan 2020, Hong Kong Port Cargo Forecasts 05-06 and the Shanghai Port Master Plan 2003. He has recently finished

reviewing a major port investment on the West Coast of North America serving the Asia-Pacific trades and also provided support to the successful bidder for the Karachi New Deepwater Port. In addition to his work on sea ports, Jonathan has also worked extensively in the aviation sector and has been retained over a number of years by Airport Authority Hong Kong to advise the Board and senior management on competitiveness strategies and master-planning. He is currently President of the Hong Kong Institute of Management Consultants, and holds a BA, MA and PhD from Cambridge University.

PORTS

impacts for port competition are clear – significant excess capacity chasing cargo, which will likely put downward pressure on tariffs. Furthermore, it seems fair to assume that South China ports will also be keen to handle transhipment cargo and hence compete with Hong Kong in this market – there will likely be strong lobbying to ease current Mainland restrictions on transhipment.

A key question is whether any checks and balances come into play. Will the projects that are primarily driven by local government support (and related subsidies), rather than commercial logic, be reined in as the proponents (and related commercial operators and investors) start to be concerned about lack of throughput volume and falling profitability?

Will those operators with major investments in Hong Kong and Shenzhen – China Merchants, MTL and Hutchison Port Holdings – be able to exert any control over the balance of supply and demand and the downward pressure on revenues or will the excess capacity induce a price war (on the basis that "any cargo is better than no cargo")? On the other hand, the lower prices and increased choice of port services are clearly of benefit to shippers and shipping lines. Beyond the negative environmental impacts, should policy makers therefore be worried about significant surplus capacity if the investment risk has been largely allocated to the private sector?

Figure 2 presents a similar analysis for the YRD. The capacity analysis covers Shanghai and Ningbo, plus the smaller ports of Lianyungang and Taicang. The absence of any significant capacity over-hang, especially post 2012 is clear. Given this context, it seems likely that the additional 14 berths that could be developed at Yangshan will be brought on stream before 2020 – i.e. 50 berths by 2020.

The tightness of capacity should ensure that there is no significant chase to the bottom for cargo – operators should be able to protect their tariffs without seeing a substantial migration of cargo to other ports. The competition is primarily between Shanghai and Ningbo for the YRD cargo base (Lianyungang and Taicang are unlikely to be major players). Competition from Bohai Rim and South China ports will be minor. There is only limited overlap between hinterlands and hence little of the YRD cargo base is contested by ports from other regions. For international transhipment there

may be some competition if Mainland restrictions are lifted. This is in addition to the international competition from Busan, Hong Kong, Kaohsiung, etc. However the projected supply-demand balance indicates that the YRD ports will have the luxury of deciding whether they want to top up with this footloose, lower revenue cargo or not. Moreover, their substantial base-loads of origin/destination (O/D) cargo will ensure high liner connectivity and add to the competitiveness of both Ningbo and Shanghai for O/D and transhipment cargo, before they even need to start thinking of cutting charges.

Given the high demand for port services, relatively tight supply, limited competition for Shanghai, and extremely high capital expenditure for Yangshan (notably the road link to the terminal platform), the headline handling charges for Shanghai are surprisingly low, especially when compared with the rates in South China and elsewhere. This remains the case, even with the tariff increases announced at the end of 2007. A key influence and point of departure from Hong Kong and South China, is the prominent role taken by government (through the Shanghai International Port Group) in keeping prices down. Rapid volume growth at the new Yangshan, keeping transport costs down for YRD manufacturers and a desire to top the throughput league tables appear to be higher political priorities than cost recovery for the substantial, public sector investment at Yangshan….certainly for the time being.

57Shippers Today

58 Shippers Today

C S A V N O R A S I A ( w w w .c s a v n o r a s i a . c o m / ) c o n t a i n e r s h i p , P u c o n , p a i d h e r m a i d e n c a l l a t D a C h a n B a y Te r m i n a l One, the new terminal facility in Shenzhen, China, on January 13. The Compañía Sud Americana de Vapores (CSAV) vessel is being d e p l o y e d f o r t h e w e e k l y A s i a -Nor th Europe (ANE) se rv ice o f CSAV NORASIA. It also marks the f irst s tr ing call ing Da Chan Bay Terminal One s ince i t off ic ia l ly opened in December 2007.

C S AV N O R A S I A i s p a r t o f t h e CSAV Group , which i s based in Valparaiso, Chile, and is the largest shipping company in Latin America. The ANE se rv i ce dep loys e igh t vessels with an average carrying capacity of 6,000 TEU. Its 56-day rotation covers Le Havre, Hamburg, Rotterdam, Antwerp, Port Kelang, Da Chan Bay Terminal One, and Qingdao in its eastbound service and other ports in westbound service.

I n 4 Q 2 0 0 7 , C S AV N O R A S I A announced the swi tch ing of the I s t anbu l ca l l t o the Wes t bound v o y a g e o n i t s A s i a B l a c k S e a Serv ice (ABS) . The f i r s t vesse l o n t h i s r o u t e w a s t h e L o a v o y 748 which started the rotation at X i n g a n g o n N o v e m b e r 2 6 a n d reached Istanbul on December 21.

D a C h a n B a y Te r m i n a l O n e i s located at Da Chan Bay Terminal, X i X i a n g R o a d S o u t h , B a o A n District, Shenzhen, PRC 518102. Te l . (86) 755 2791 0068; Emai l commercial@DaChanBayOne.com.

CSAV NORASIA christens Da Chan Bay

Seen here watching the fireworks off the waters of Disneyland are, from left to right: K C Wong, Fracht; Byron Lee, China Global; Guillermo Ginesta, CEO of CSAV NORASIA; Gina Giron-Urquiola, Shippers Today; Hernan Martinez, Line Manager, CSAV NORASIA; and Jens Pottschul, Hellmann.

CSAV NORASIA top management, from left to right: Pablo Gonzalez, Mauricio Ramirez, Hans Moller, Guillermo Ginesta, Mario Da-Bove, Hernan Martinez, Cristian Ulloa and Dheeraj Bhatia.

CSAV NORASIA in Hong Kong celebrated the holidays in December with its customers, clients and friends, with a black tie party on board a private yacht that went down the Hong Kong harbour for the evening while guests enjoyed Chilean wine and salsa dancing on-board.

PORTS

�0 Shippers Today

SECURITY

The European Shippers' Council (ESC) has voiced concern about the US advance trade data initiative known as the 10+2 security programme. The proposal, according to the US National Industrial Transportation League (NITL), would require both importers and carriers to submit additional information on cargo to Customs and Border Protection (CBP) before the cargo is brought into the US.

"ESC considers that the proposal is another bureaucratic burden for European companies" trading with the US, said ESC Secretary General Nicolette van der Jagt. The ESC said it will ask the European Commission to call on the US to not apply this rule to the European Union, and instead, apply the mutual recognition concept in relation to new programmes such as the Authorized Economic Operator programme. That programme will become operational as of July 2009.

"We welcome the fact that the European Commission has already expressed concern that the 10+2 rule does not respect the SAFE Framework established by the World Customs Organization (WCO) since it goes far beyond" what is recommended by the WCO. "Apart from this we are not sure whether European exporters are willing to exchange commercially very sensitive information with their trading partners," van der Jagt added.

The long anticipated notice of proposed rulemaking (NPRM)—the Advance Trade Data Initiative otherwise known as "10+2" was formally published on January 2 in the Federal Register. The proposal would require bo th impor te rs and car r ie r s to submi t addi t iona l information on cargo to Customs and Border Protection (CBP) before the cargo is brought into the US. The NPRM is focused on imports entering the US by water. The due date for comments is March 3, 2008. Under the proposed program importers will have to file 10 data sets with CBP at least 24 hours prior to foreign lading of the cargo onto a vessel bound for the United States. Carriers will have to file an additional two data sets. All carriers (except for ships exclusively carrying cargo in bulk) would be required to submit a vessel stow plan not later than 48 hours after departure from the last foreign port. For voyages of less than 48 hours, the stow plan

10+2 US security programme raises trade concerns

would be submitted prior to arrival in the first US port. For importers, the proposal sets forth 10 elements that are required for shipments consisting of goods intended to be entered into the US as well as goods bound and/or delivered to a foreign trade zone (FTZ).

These 10 data elements must be transmitted by the importer and consist of the following:

• manufacturer (or supplier) name and address; • seller name and address; • buyer name and address; • ship to name and address; • container stuffing location; • consolidator (stuffer) name and address; • importer of record number/ FTZ applicant identification number; • consignee number(s); • country of origin; and, • commodity harmonized tariff schedule of the US (HTSUS) number (provided up to the 6 digit level).

For freight remaining on board (FROB), five elements must be provided and include:

• booking party name and address; • foreign port of unloading; • place of delivery; • ship to name and address; and, • commodity HTSUS number.

The purpose of the new rule is to better evaluate the potential risk of smuggling weapons of mass destruction through the use of oceangoing cargo containers before goods are loaded on vessels destined to the US. While the NITL is currently analyzing the latest proposal, last year it told CBP that while it believes the program's objective is correct, the 10+2 initiative needs to take into account the hundreds of thousands of shippers that utilize different types of supply chain strategies. It pointed out that this could make full compliance difficult. To view a copy of the NPRM, visit www.nitl.org/E7-25555.pdf.

�1Shippers Today

SECURITY

U S C u s t o m s a n d B o r d e r P r o t e c t i o n ( C B P ) h a s announced that it is expanding participation in the vo lun ta ry program known as the Cus toms Trade Partnership Against Terrorism (C-TPAT) to air carriers and third party logistics providers (3PLs) by early

2008 (NITL Notice, November 30, 2007).

Earlier this month CBP released its minimum security cr i ter ia for a i r carr iers . I t i s cont inuing to s tudy how similar criteria can be expanded to 3PLs. One difficulty faced by the CBP with respect to 3PLs is how their supply chains can be fully vetted so as to ensure the chain’s integrity.

At a recent meeting of the League’s Select Committee on Security and Ocean Transportation Committee, members discussed the relative merits of participation in C-TPAT. At these meetings, members also shared thei r perspect ives on the program, including the merits and benefits of CTPAT participation versus the relative costs.

In January, NITL Notice published the results of a survey of members of the National Industrial and Transportation League on their views on the relative meri ts of par t ic ipat ion in the voluntary secur i ty program, C-TPAT.

The ten-question survey was prompted over concerns expressed over the relative value of the programme particularly in view of subsequent initiatives which call for the eventual scanning of al l cargoes’ and advance manifest and trade data submissions such a "10+2" (Notice, January 4).

O v e r a l l m o s t r e s p o n d e n t s e x p r e s s e d p o s i t i v e e x p e r i e n c e s w i t h C - T PAT. M o s t i n d i c a t e d t h a t they have been in the program for more than three years, have had good experiences in working with Customs and would recommend to other companies that they participate in C-TPAT.

C-TPAT expanded to air carriers

The survey had 68 responses with nearly 80 percent stating that they are certified at "Tier 2" or "Tier 3" levels. When asked why they chose to participate in CTPAT, by a 2-1 margin—respondents believed they would be conferred tangible benefits such a fewer inspect ions , less de lays and reduced cos ts . For a complete breakdown of the survey results, visit www.nitl.org/C-TPATSurveyResults.pdf.

Meanwhile, Notice also reported in November that the House Appropriations Committee is considering a provision to a funding bill that would accelerate the current timetable requiring that 50% of air cargo on passenger aircraft be inspected within 18 months and 100% of all cargo in passenger planes within 3 years.

The current timeline for inspecting such cargoes was included in the Implementing the 9/11 Commission Recommendations Act of 2007 and signed into law earlier this year. The House Appropriations provision would shorten the 50% mandate from 18 to 10 months.

The League is working with a broad-based industry coalition to counter this provision and isconsidering a j o i n t l e t t e r t o t h e C o m m i t t e e i n o p p o s i n g t h e accelerated timetable. Among the arguments to be made is that it was only a short few months ago that Congress passed, and the President signed into law, the current requirements on a i r cargo screening. Further, that Congress should allow the Transportation Security Administration (TSA) to implement current requirements before establishing new mandates.

Additionally the group will point out that "doubling" the amount of cargo inspected within 10 months is an arbitrary formula that will divert, not focus, necessary resources and slow implementation of the 9/11 bill.

Finally the group will point out that it fully supports TSA current mandates for screening air cargo as set forth in the 9/11 bill.

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CHINA TRADE

Stick a pin into the centre of a transport artery map of China and invariably you'll hit one that links to Wuhan. This perfectly located city sits on the crossroads of China, smack in the centre of the east-west Yangtze river and at the middle of the north-south rail link through China.

Variously described as the 'Detroit of China' for its myriad car factories, or the brewing centre of the mainland for Anheiser Busch's huge beer operations that supplies more than 40% of China's beer consumption, Wuhan has the potential to become a leading logistics hub for the region.

However, transportation costs are still an issue. Independent research carried out by City Connect (www.cityconnect.com.cn) shows that it costs 10% more to produce a car in Wuhan than it does in Shanghai, despite the considerably cheaper wages in Wuhan. Japanese car maker, Honda, has

seen its plant in Wuhan (one of two in the country, the other being in Guangzhou) continue to churn out more and more vehicles. The plant can now produce 70,000 Civic sedans and 50,000 CR-Vs a year. China's Dongfeng Motor has commenced construction of a new facility in Wuhan to produce its own brand vehicles. It already has a joint venture with Honda in the city, which will start constructing hybrid, environmentally-friendly cars starting this year.

M e a n w h i l e , D o n g f e n g H o n d a Automobi le doubled i t s sa les to 125,000 units in 2007 from 63,000 units in 2006. The company currently produces the Civic sedan and the CR-V sport-utility vehicle. PSA Peugeot Citroen, which has also enjoyed a highly successful partnership with Dongfeng in Wuhan, is on a mission to double its market share in China by 2015. Peugeot, Europe's number two automaker by volume, is doubling

capacity at its central China plant in Wuhan to 300,000 vehicles a year by 2008, and building a second facility to add capacity of 150,000 units per year.

Wuhan now has more skyscrapers than London. Last year it became one of 13 mainland cities whose GDP exceeds RMB300 bn. Reflecting the province's rise is the fact that the United States has just opened its fifth China consulate there.

With a gigantic US$1bn investment by Taiwan's Foxconn, Wuhan is set to become the world's largest digital camera production base. Some 200,000 people will be employed by Foxconn in Wuhan–that's the same as the whole population of Arlington, Virginia or Northampton in the UK. The first digital camera and PC were produced in October 2007, and once fully up and running the facility will knock out US$12.5bn worth of products a year. Foxconn is also building a massive LED factory in the Hebei capital. Meanwhile, IBM, which boasts more than 1,000 customers in Wuhan, is reportedly looking to invest in the city.

Wuhan is often selected by central government as a petri dish for change aka in Beijing speak as an 'experimental zone of comprehens ive reform' . Whether it's in fostering links with the poorer rural surroundings, developing green industries, pioneering aviation liberlaisation, or even gambling—Wuhan—in the heart of China, is also the heartbeat of change.

And so it was on December 21 that the local government held a press conference announcing comprehensive transportation investments in Wuhan for it to become a hub and make best

The heartbeat of changeby Sam Chambers,

Managing Director, CityConnect.com

Sam Chambers is the Hong Kong correspondent for Supply Chain Asia as well as founder of City Connect (www.cityconnect.com.cn), a series of inland, municipal supply chain events including one for Wuhan on September 22-23. Chambers is a freelance travel and transport writer, the Asia editor for Seatrade, and Asia columnist for Cargo Facts. In 2006, he founded City Connect, the world's first dedicated inland, municipal supply chain conferencing company which debuts in

Chongqing in April, before heading to Wuhan in September and Chengdu in November. Chambers is publishing a book on China's ethnic minorities, due out next year, which explains the headgear in the photo above.

Wuhan, in central China, is forging ahead with dramatic transport infrastructure developments, writes Sam Chambers from Hubei province

CHINA TRADE

use of the State Council's grant on its 'experimental' status.

News from the press conference showed the main body of Wuhan Railway Station will be completed before the Spring Festival; Tianxingzhou Road/Railway Yangtze Bridge, with a total investment of RMB16.7 bn, will be completed and put into operation in 2008. Wuhan Railway Station, with a total investment of RMB14 bn, will be completed in 2009 and make Wuhan the fourth largest railway hub in China.

In the summer last year, Canada's Bombardier Transportation won a contract for rail signaling equipment w o r t h U S $ 9 1 m i l l i o n . T h e n e w system will manage high-speed trains traveling at speeds of up to 300 km per hr, along nearly 1,000 km of rail line between Wuhan and Guangzhou. The new system is scheduled to enter commercial operation in January 2010 and there is speculation that Japan's bullet trains will be used on this route. Meanwhile, work has started on the city's first subway. A total of seven lines are planned—from a logistics point of view, should help ease road congestion.

Telecommunications network gear-maker, Nokia Siemens Networks, said last autumn it had won an expansion order for network equipment for a proposed Hefei-Wuhan railway line in China. Nokia Siemens said the railway line would be 360 km long and operational by early 2009.

Eight expressways that connect Wuhan with nearby cities will be completed in 2008, making the neighbouring eight cities within an hour's access from Wuhan and making Wuhan—as the China Daily put it, more 'outstanding' as a transportation hub.

Construction work is speeding up on the first tunnel to pass under the Yangtze River. Workers in Wuhan have now completed three-quarters of the

section of the tunnel that lies beneath the country's longest river. Advanced technology is being used in the massive project being carried out some 60 meters under the river. The 3.6 km long tunnel is set for completion by the end of 2008 and will make it easier for vehicles to cross the Yangtze River.

At the end of December, Wuhan Yangluo Yangtze River Bridge, the fifth Yangtze River Bridge in the city, started operation. The bridge has also become the 8th largest suspension bridge in the world at 1,280 metres in length.

The second terminal building of Tianhe Airport will be completed and put into trial operation before the Spring Festival, increasing the capacity of this airport to 13 mn passengers annually. The third terminal building and the runway are expected to start construction soon and will increase the capacity of the airport to 35 mn passengers annually.

When it comes to aviation, Wuhan really is the envy of just about everywhere else in China. While Beijing has become quite restrictive on granting rights for new airlines, Wuhan's aviation liberalisation experiment has allowed plenty of new firms to get the blessing of Central authorities, making the city a vibrant air hub. A large air cargo logistics park is now being built.

A potentially huge and significant moment in the easing of China's aviation structure took place in July last year in Wuhan. China's General Administration of Civil Aviation (CAAC) granted private carrier East Star Airlines the rights to operate international flights. The significance? In a bid to shield the big three, state-run airlines, Beijing has, until last July, insisted that no airline can gain international flight rights until it has been operating for at least three years. East Star, based in Wuhan, only started operations in May 2006. The airline now calls at Hong Kong and Macau. It has also applied to operate flights to

Singapore and Thailand. The airline started flying in May 2006 with three Airbus 319s. It plans to add six Airbus A320s and 11 short-range Airbus aircraft by end-2008.

In other airline news, under a code share agreement with Air China, rapidly expanding Austrian Airlines has started daily calls at Wuhan. The CAAC said mid-December that it has also approved the application of setting up a new air freight company called Uni-top. The new company will be based at the airport, with a focus on domestic and overseas cargo transportation. Uni-top Logistic Company and Autel Intelligent Technology Co Ltd will invest RMB135 mn and RMB15 mn respectively in Uni-top. It plans to rent two Boeing 747-300 aircrafts and one 747-400 to undertake the services, as reported by sources.

Wuhan Port Group, an ent i ty the mighty Shanghai International Port Group invested in nearly three years ago, operates six terminals handling all cargo. Officials in Wuhan expect the city to handle 450,000 TEU in 2007 (up 100,000 from 2006), and to crack 1 mn TEU by 2010. The municipal government, on listening to shippers' demands, are targeting a project for 24/7 Customs clearance.

Meanwhile, CIG Yangtze Ports will invest RMB150 mn in building a dock for heavy and large-sized goods in the Yangluo Port in Wuhan. The project will start construction at the beginning of 2008 and is expected to finish in mid-09.

On the box front, CIG has an 85% stake in the two-berth Phase I of Wuhan International Terminal Port and is planning to take a 40% stake and develop four berths in Phase II. After the Phase II expansion is completed in 2010, Wuhan International Terminal's capacity will increase to 1.2 mn TEU. It will be the largest box port in western and central China, and will account for 80% of Wuhan's total throughput.

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�4 Shippers Today

CHINA TRADE

Relocating Processing Trade from PRDAssessing alternative destinations on the Mainland • Research Department, Hong Kong Trade Development Council

To encourage the re loca t ion of processing trade activit ies from C h i n a ’ s c o a s t a l r e g i o n t o t h e c e n t r a l a n d w e s t e r n r e g i o n s , M O F C O M h a s s e l e c t e d n i n e c i t i e s a s t h e f i r s t b a t c h o f k e y alternative destinations. They are Chenzhou in Hunan , Wuhan in Hubei, Xinxiang and Jiaozuo in Henan, Hefei and Wuhu in Anhui, Taiyuan in Shanxi, and Nanchang and Ganzhou in Jiangxi.

M o s t o f t h e H o n g K o n g processing trade operators with plans to relocate would only do so by expanding their production l i n e s , s h i f t i n g p a r t o f t h e i r p r o d u c t i o n a c t i v i t i e s t o a r e a s o u t s i d e t h e P e a r l R i v e r D e l t a (PRD) region while maintaining c l o s e t i e s w i t h t h e i r e x i s t i n g p r o d u c t i o n b a s e i n t h e P R D t o l e v e r a g e o n t h e a d v a n t a g e o f c o m p l e m e n t a r i t y . A s s u c h , preferred alternative destinations f o r r e l o c a t i o n a r e p r i m a r i l y p l a c e s i n t h e v i c i n i t y o f t h e PRD. Apar t f rom Ganzhou and Chenzhou which are designated by MOFCOM, Beihai and Yulin in Guangxi (which lies adjacent to Guangdong and is part of the

P a n - P R D reg ion ) a r e a l s o g o o d c h o i c e s a s processing trade under the restricted category is still allowed there.

Labour supply and cost are among the key considerat ions of Hong K o n g c o m p a n i e s p l a n n i n g t o relocate. In Ganzhou in Jiangxi, an estimated 2 million out of its 8 .6 mi l l ion people are working and l i v ing ou t s ide the c i t y . To help enterprises recruit workers, Ganzhou has proactively stepped up promotions to attract the return o f i t s na t ives who a re work ing a n d l i v i n g i n o t h e r p r o v i n c e s . Apart from Ganzhou, other cities w i t h l a r g e p o p u l a t i o n s , l a r g e number s o f ou tbound worke r s , o r la rge surp lus labour inc lude Chenzhou in Hunan, Nanchang in Jiangxi, and Yulin in Guangxi.

T h e m i n i m u m w a g e l e v e l s o f N a n c h a n g a n d G a n z h o u i n J i a n g x i , C h e n z h o u i n H u n a n , and Yulin and Beihai in Guangxi are slightly higher than those of J iaozuo and Xinxiang in Henan bu t lower than those o f Anhui ,

H u b e i a n d S h a n x i . G e n e r a l l y s p e a k i n g , t h e m i n i m u m w a g e l e v e l i s a r o u n d R M B 4 0 0 - 5 0 0 a month in c i t ies in the cent ra l a n d w e s t e r n r e g i o n s , w h i c h i s s ignif icant ly lower than that in PRD cities.

I n t e r m s o f e x p o r t r o u t i n g , Ganzhou in J iangxi , Chenzhou i n H u n a n , a n d Y u l i n a n d B e i h a i i n G u a n g x i r e l y m o r e o n t h e P R D a n d H o n g K o n g as the d i s tances be tween these c i t i e s a n d t h e t w o r e g i o n s a r e s h o r t e r . H e f e i a n d W u h u i n Anhui pr imar i ly use Shanghai , a n d J i a o z u o a n d X i n x i a n g i n Henan , and Ta iyuan in Shanx i m o s t l y e x p o r t v i a T i a n j i n a n d Qingdao . As fo r r aw mate r i a l s for the production of industrial g o o d s , t h e P R D i s t h e k e y s o u r c e f o r N a n c h a n g a n d Ganzhou i n J i angx i , wh i l e t he o the r c i t i e s a re l e s s r e l i an t on t h e P R D . - H o n g K o n g Tr a d e Deve lopmen tCounc i l Research Department

The changing investment environment in the PRD is pushing Hong Kong manufacturers who want to expand, to move production in areas outside the PRD cache. The Ministry of Commerce (MOFCOM) assists by identifying nine central region cities ideal for relocating processing trade from the coastal cities.

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T h e L a b o r C o n t r a c t L a w o f t h e People's Republic of China will come into force on January 1, 2008. This is a most important work in the field of legislation over the last 10 years, with a major breakthrough in the existing labor law, as well as in many aspects of local policies. Since October 2007, as the date of implementation of the labor contract law neared, cases have occurred from time to time that surprise dismissal of the old corporate staff, forcing staff to take a "voluntary" resignation and re-sign a labor contract, so that the employees had to accept "zeroing" of the length of service in the service unit. Even a small number o f employe r s a r e found to have illegal implementation of economic eliminating by one-time dismissing a large number of workers with a labor contract signed. This has triggered a high degree of community concern.

Article 14 of the Labor Contract Law

In China's enterprises, the short-term of the contract is found quite common. In 2005, the National People's Congress Standing Committee had a national labor inspection, which revealed that in small and medium-sized enterprises and non-public-owned enterprises, those

that had the labor contract signed with the laborers were less than 20 percent and individual economic organizations saw an even lower rate; the survey also revealed that more than 60 percent of employment units usually signed short-term labor contract with the workers, mostly once a year, and some even more versions in a year. As a result, this has affected the stability of labor relations. The new Labor Contract Law hereinabove is to solve the problem of short-term contracts by expanding the scope of labor contracts without a fixed period where applicable.

Non-fixed term labor contract is that an employing unit and the workers shall agree to terminate such contract without determining the t ime for expiration thereof. Many people believe that such a labor contract is an "iron rice bowl", "life tenure" and that there was no fixed deadline for dissolving a labor contract once signed. Therefore, many workers always try everything possible to sign a non-fixed term labor contract with employers. On the other hand, employers consider the non-fixed term labor contract to be a "life-long burden", and trying to evade the legal obligation therein.

In fact, no specific termination time

means that a labor contract does not have a fixed expiry time; the length of the duration of the labor contract not to be determined dose not mean that such expiration time doesn't exist. As long as there are no legal provisions or conditions of the terms agreed by both parties, the parties shall continue to fulfill the obligations under the labor contract. A non-fixed term labor contract is not a permanent one, and does not mean that workers therewith may be arbitrary in actions and shall comply with the labor regulations of such unit and the relevant provisions of the Labor Law. Once the situation(s) provided by the law have occurred, such non-fixed term labor contract may also be lifted. There are three situations that may cause dissolving a labor contract without a fixed term: (1) where the Employer and the Worker therewith have an agreement; (b) where the Worker has an illegal behavior or in illness or with an injury, thus not competent in work; (3) economic retrenchment. These situations are in consistency with the regulations for lifting a fixed-term labor contract.

Article 14 to the Labor Contract Law provides that a labor contract without a f ixed t e rm sha l l be conc luded accordingly in respect of any worker

New Labor Contract Law of the PRCNew Labor Contract Law of the PRC

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with over 10 years of continuous employment in a work unit, employing units in the initial implementation of the labor contract system, or re-establishment of state-owned enterprise that is to restructure a labor contract, and such worker in the employing unit has a continuous work period for ten years, and less than a decade from the mandatory retirement age, or for a second time to sign a fixed period of labor contract, when such worker is consent to the renewal of a labor contract, in addition to the proposal proposed by such worker to sign a fixed-term contract.

Where employing units having had an employment with workers on the date of the expiration of one year and did not enter into a written employment contract with such workers shall be deemed as such employers and workers have made a non-fixed term labor contract. Employers, who have violated this law and failed to make a labor contract without a fixed term with such workers, shall pay such workers twice the monthly wage since the date of a labor contract without a fixed term shall be signed.

Impact of Labor Contract Law on Enterprise

The final version of the labor contract law has the provisions of Article 14 as that, workers in meeting " having been with an employing unit for over 10 years of continuous work" or "for a second fixed-term labor contract" condi t ions can be made with the employing units a "non-fixed term labor contract." This provision has caused many entrepreneurs' concern that the employment enterprises will face greater difficulty in autonomy on firing, i.e. high cost; enterprises

cannot determine how much this risk might be. Before the implementation of the new labor contract law, there will probably be major adjustments in human resources management policies in many enterprises.

October 22, 2007, Wal-Mart global procurement hub issued a layoff notice, the global total of more than 200 employees would be given an "unprincipled dismissal", of which Chinese staff were about half of the number.

In the City of Dongguan, Guangdong, China, a sports hardware factory forced more than 1,000 workers "to be recruited only after demission", that is, one hand is to sign a letter for voluntary demission whilst the other hand to sign a new contract.

A l s o i n H u i z h o u , a n o t h e r c i t y in Guangdong Province , a da i ly necessities manufacturer requested a number of 2,500-contracted employees to sign a new contract, which would be effective on the date of January 1, 2008. At the same time employees were asked to sign a labor contract to terminate the original "agreement".

Huawei Techno log ies Co . , L td . Shenzhen introduced the "Regulations on Compensa t ion fo r L i f t ing o r Termination of Labor Relations," which encouraged more than 7,000 old employees with over eight years, before the New Year's Eve in 2008, shall take the initiative for the resignation procedures, then 1-3 years of labor contracts would be resigned with them after the competition for a post with the company. All their jobs, wages and benefits would remain unchanged, except the labor contract and seniority would be once again signed for a

change. In exchange, Huawei offers a h ighe r s t anda rd fo r economic compensation than the new Labor Contract Law stipulates, for a total of up to RMB 1,000 million. Under the rule of "First resignation, then compete for a post", all staff in the voluntary departure would be granted by Huawei the corresponding compensations. The compensation package is as per "N +1". N is for work age in the Huawei, e.g. a Huawei employee has a monthly salary of RMB 5,000 yuan, and 60,000 would be the bonus for a year; if such employee Huawei has work ed for eight years, then he would be given the final amount of compensation of RMB 10,000 yuan (wages + year-end bonuses equally shared), multiplied by the "8 +1", totaling 90,000 yuan.

The Huawei event immediately became a hot topic in social circles, producing a tremendous demonstration effect. It is generally considered that the purpose of Huawei is trying to write off the seniority of the old employees, and have the i r l ength of se rv ice recalculated, avoid staff working continuously for 10 years and signing a fixed-term labor contract. To ultimately circumvent the Article 14 to the new "Labor Contract Law", in advance, it attempts to convert the possible "long-term contracted" staff to "short-term contracted" staff. Huawei responded, however, that this adjustment is a normal practice of human resources. The old staff getting onto the new posts would be more dynamic for the enterprise. Meanwhile, it denied the intention to have the previous work ages of the old employees converted into "zero."

Some senior judges and lawyers considered that, because the relevant judicial interpretations have not yet

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introduced, whether the practice of Huawei spending money to encourage nearly 10,000 employees to resign and have a competit ion for a new post could real ly circumvent the labor contract with no fixed term is still unknown. Such practice in an enterprise might face an adventure. Buyouts cannot be used as the simple way to solve a series of problems such as the health care period, annual leave and the length of service. Under the current practice of Huawei, the so-called "demission" of the Huawei staff is not a real leave off their post. Instead, all the staff would continue to work. In legal terms, demission is marked as: the handling of handover to recover the card, and payment of wages stopped, and social security stopped, file transferred, handling registration of the unemployed, rather than relying on staff to submit a single report on the resignation. So, although Huawei provides recalculation of seniority with that employees have to agree, the statute is greater than agreement, the "left" staff's working age can not be re-calculated, and but deemed as a consecutive term. According to the "Labor Contract Law," Article 14 provides that in the same unit for 10 years or more, employees shall have the right to sign a non-fixed term labor contract the employer.

As for Huawei to pay compensation, it may be seen as the future of economic compensation paid to the workers as the early part thereof. Because the length of service of staff could not be really written off, Huawei's practice is to have the economic part paid to the workers as an advance payment. For example, a Huawei staff has been in eight years, the staff has received the first eight years of payments this time; After re-signing a labor contract, and

then assumed that paying economic compensation occurs in 3 years, the eight-year work age shall then be removed, with only later three years of compensation received.

It is understood that regarding to the "labor contract law," the draft of the implementation details has been worked out, and now is seeking opin ions f rom di fferent par t ies . Meanwhile, the judicial interpretation of the Law wi l l a l so recent ly be introduced by the Supreme People's Cour t , and is expected to def ine t he s i t ua t ion men t ioned above . I f the new law, be fore and a f t e r its implementation, meets a large number o f avo idance measures , judicial interpretation might be cover the concept of "the contract signed within one year after being dismissed may be treated as a continuous labor contract." In the foreign practices, a contract re-signed within one month to three months, shall be deemed as a continuous labor contract.

Law Working Committee of the National People's Congress Standing Committee: Interpretation of the Authority

Prior to the implementation of the labor contract law, some enterprises intend to dismiss employees, or force employees to take a resignation, resulting in the workers in the service unit to get a "zero" for the continuous length of the service.

Law Working Committee has said that these practices have aroused widespread social concerns and strong reactions. Employers adopt these practices for different purposes: some had a misreading or misunderstanding o f t he l abor con t r ac t l aw; some

intended to circumvent the relevant provisions of the labor contract law; and in some enterprises, this has been done by a small number of people to seek their own interests. Such practices are actually contrary to the provisions of the labor contract law, and have not only caused harmonious impact on stable labor relations, but also damaged the legitimate rights and interests of workers, and nor conducive to the development of enterprises.

In accordance with the provisions of the labor contract law, employing units have established a labor relation w i t h l a b o r e r s f r o m t h e d a t e o f employment of the workers. After the implementation of the labor contract law, as long as workers cont inue to work in this unit, labor relations i s deemed as cont inuous; even a "resignation" and/or a "voluntary agreement" have formed to change the labor contract, nor can it change the fact of such "labor relation". And also, Employers cannot circumvent the statutory obligations.

Labor Contract Law on the provisions of the labor contract with no fixed time limit is targeted mainly at labor and employment in the short-term labor contracts and the prominent problem in a one-year labor contract, and even the more common situation where signing contracts for several times in a year. The purpose is to encourage and guide the Employers and workers to sign a longer duration of a labor contract, in attempt to construct stable labor relations and enhance laborers' identification with the employing units, improving labor enthusiasm and promoting a long-term development.

Prior to that the Labor Contract Law comes into effect, employing units, in

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lifting or terminating labor contracts, shall be strictly in accordance with the implementation of the provisions of the Labor Law. If there is an economic layoff, it shall be in accordance with the Labor Law Art ic le 27 on the economic layoffs; If employing units have a unilateral dissolution of the labor contract, in accordance with the Labor Law Article 30 and Article 21 of the Trade Unions Act, employers shall in advance notify the trade unions for seeking their views thereon. Workers that consider employing units illegal in lifting or terminating labor contracts may require the labor department to have it dealt with according to law, or an application can be filed for labor arbitration or litigation.

L a b o r C o n t r a c t L a w A r t i c l e 9 7 provides that any labor contracts that have been lawfully entered into and exist ing before the effective date of the labor contract law shall continue to perform. Pursuant to this principle, the labor contract law made three transitional provisions: First, in respect of the number of consecutively signing labor contracts with a fixed period of time shall be counted as per the date of the renewal of fixed-term labor contracts after the implementat ion of th is Law; second, with the establishment of de facto labor relations, a written labor contract that has not yet been made shall be concluded within one month as of the date of the implementation of this Law; third, in respect of lifting or terminating labor contracts, the method for economic compensation shall be implemented in accordance with the relevant existing provisions prior to the implementation of this Law; As of the date of the implementation of this Law, the provisions of this Law shall govern.

�9Shippers Today

Dener De Souza Robert Siegel

Establishing a cargo outstation requires not just a lot of cargo, but a good deal of expertise, experience and ingenuity–which is precisely the criteria Emirates SkyCargo looked to fill when appointing cargo managers of its newly opened routes, said Peter Sedgley, Emirates' Senior VP Cargo Commercial Operations. Emirates SkyCargo now serves 99 destinations in 62 countries. Venice Cargo Manager, Giovanna Cardinali, joined Emirates SkyCargo from Venice's Marco Polo Airport where she held a variety of positions, including Cargo Sales and Marketing Manager, for seven years. Lisa Downey, formerly with Emirates SkyCargo Manchester station, was appointed Newcastle Cargo Supervisor when the new route opened. She brings with her 17 years' experience in the UK air cargo industry. New Brazil Cargo Manager, Dener De Souza, based in Sao Paulo, joined Emirates SkyCargo after previously holding senior cargo roles at American Airlines, KLM and Varig Airlines spanning back to 1985. Air cargo specialist, Mahendra Pokhriyal, was appointed Cargo Manager at Ahmedabad when Emirates SkyCargo commenced flights to

the Indian city. He has spent 1 8 y e a r s i n the a i r cargo industry, and was previously at Jet Airways as Area Sales Manager Cargo.

Hutchison Port Holdings (HPH) has named ECT President, Jan Westerhoud, as division director for North Europe, it was reported late in 2007 by World Cargo News online. This cluster includes all HPH's operations in Belgium, France, the Netherlands and Germany plus all of Scandinavia and the Baltic, including Russia. The appointment, it was reported, marks a split in HPH's European control, as Richard Pearson headed all HPH operations in Europe as CEO of what was until recently called Hutchison West Ports, based in the Port of Felixstowe. Previously the European head office, the Felixstowe office will now cover the UK and all of the Mediterranean, including the East Med. Likely to be renamed Hutchison Central Europe, it is headed by Clarence Cheng, formerly the unit's CFO under Pearson. Westerhoud commented that Hutchison's decision to split Europe into two major divisions gives ECT a boost. It will bring ECT closer to the global centre of operations in Hong Kong. From being a subsidiary reporting to Felixstowe, ECT now oversees more than half of Europe. Westerhoud joined HPH in mid-2004 as president of in Rotterdam. Europe's biggest container terminal operator, ECT handled 5.5M TEU in 2006 and has just handled the container that represented the Port of Rotterdam's 10 millionth TEU in 2007. World Cargo News online

H e n r i k v o n S y d o w b e c a m e Executive Director on 1 Jan 2008 of Kerry Logistics, based at the head office in Hong Kong, Sydow is responsible for all international f re ight forwarding business . Henrik von Sydow joined Kerry Logistics from Baltrans Logistics as the Di rec tor o f Corpora te Strategy in 2007. Gary Wilcock has been appointed Managing Director of Europe for Kerry Logistics. In his new function, Wilcock is responsible for the Group's business operations in the UK, Spain, Central Europe and Western Europe. Wilcock joined Kerry Logist ics from Trident International as the Managing Director of UK in 2002.

Duncan Watson Lisa Downey

F o r m e r l y a GSA for the cargo divisions of Air Canada and Canadian A i r l i n e s b a s e d i n Toronto, Ken M c D o n a l d joined Emirates SkyCargo as Cargo Manager in Toronto. The Emirates SkyCargo business in Houston will be led by industry specialist Roberto Penate who has been appointed Cargo Manager. Cyprus & Malta has a new Cargo Manager, Anthie Antoniou, based in Larnaca, who joined Emirates SkyCargo from Amathus Navigation, the GSA for several international airlines including Emirates. At the Emirates SkyCargo's Dubai hq, Duncan Watson and Robert Siegel have been appointed Regional Managers Cargo Commercial Operations Middle East & Africa and Europe & the Americas respectively. Watson was previously with DHL for 15 years where his most recent position was Head of Commercial Middle East based at the company's regional headquarters in Bahrain. Siegel has been with Emirates SkyCargo since 1991. Prior to his recent appointment in Dubai, he was Cargo Operations Manager in Frankfurt, Germany. Emirates SkyCargo launched five new freighter-only destinations in 2007-Djibouti, Hahn, Toledo, Zaragoza and Prague.

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71Shippers Today

The European Liner Affairs Association (www.elaa.net) has elected as i ts new Chairman, Ulrich Kranich, a member of Hapag Lloyd's executive board, with effect from 1 January 2008. He succeeds the Mediterranean Shipping Company's Gian Luigi Aponte. Headquartered in Brussels, the ELAA was set up in May 2003 to represent the liner shipping companies of the world in

the European Commission’s review process of Regulation 4056/86. The ELAA acts as a contact point for the EC throughout its on-going consultation and review process. Chris Bourne, formerly MD of MOL (Europe) Ltd, was named Executive Director of ELAA from 1 Sept 2007. The association counts among its members A P Møller/Maersk, Atlantic Container Line AB (Grimaldi), China Shipping (Group) Co, CMA-CGM Group, COSCO, CSAV (Compañia Sud-Americana de Vapores S A), Evergreen Marine Corp (Taiwan) Ltd, Hamburg Südamerikansiche Dampfschiffahrtsgesellschaft KG, Hapag Lloyd, Hanjin Shipping Co Ltd, Hyundai Merchant Marine Co, Ltd, Kawasaki Kisen Kaisha, Ltd, Malaysia International Shipping Corporation (MISC), Mediterranean Shipping Co S A (MSC), Mitsui OSK Lines, APL Co Pte Ltd, NYK Line (Nippon Yusen Kaisha Line), Orient Overseas Container Line Ltd, United Arab Shipping Co (SAG), Yang Ming Marine Transport Corp, and Zim Israel Navigation Co Ltd.

Lufthansa Cargo AG has announced the appointment of Flight Captain Kay Kratky as the new General Manager of Jade Cargo International, with effect from 1 Jan 2008. The Board of Directors had already appointed him caretaker General Manager of the German-Chinese cargo carrier, based in Shenzhen, in September 2007. Kratky was previously in charge of Transport Management and Flight Opera t ions a t Luf thansa Cargo . Claus Richter moves from Lufthansa Passage Airline to take over as VP Transport Management and Flight Operations of Lufthansa Cargo. He was formerly Manager Operational Support and Deputy Manager of Flight Operations of Lufthansa Passage Airline. Meanwhile, Hjoerdis Stahl, head of Lufthansa Cargo handling organisation in Frankfurt, is leaving the company at her own request and is presently on leave. A decision on a successor will be taken shortly.

Ulrich Kranich

EVENTS

72 Shippers Today

Lawson Fashion’s industry specific functionalities are designed to manage and integrate your company's business processes:

William Fung, Group Managing Director of Li & Fung Limited, will give the Keynote Address at the Opening of the 2008 edition of Prime Source Forum (www.primesourceforum.com) scheduled for 1st & 2nd April at the Hong Kong Convention & Exhibition Centre. Dr Fung joins the many distinguished speakers taking part in the Forum including Rufus Yerxa, Deputy Director General of the World Trade Organisation (WTO), who will update the expected 400 participants on the latest trade situation from the perspective of the WTO.

Lawson Software provides software and service solutions to 4,000 customers in manufacturing, distribution, maintenance and service sector industries across 40 countries. Lawson's solutions include Enterprise Performance Management, Supply Chain Management, Enterprise Resource Planning, Customer Relationship Management, Manufacturing Resource Planning, Enterprise Asset Management and industry-tailored applications. Lawson solutions assist customers in simplifying their businesses or organizations by helping them streamline processes, reduce costs and enhance business or operational performance. Lawson is headquartered in St. Paul, Minnesota, U.S., and has offices around the world. Visit Lawson online at www.lawson.com.

Lawson Fashion is an integrated ERP system specifically designed for companies with style-based products such as apparel, footwear, home textiles, luggage and accessories

companies. Available in over 20 languages and implemented in over 300 fashion companies worldwide, Lawson Fashion is known for its strong industry-specific functionalities that integrate the activities needed to handle the business of fashion, from supplier to customer. Lawson Fashion also provides lower cost of ownership than most alternatives.

Product Data - Allows you to keep, organize and access detailed records about your products.

Demand Management - Helps you to project demand more accurately to reduce excess inventory.

Customer Relationship Management - Provides a comprehensive view of your customer relationship his tory-from sales to customer service and from distribution to finance.

Tactical and Operational Supply Chain Planning - Helps you make forward planning of sourcing rules, automated purchase generation and detailed production plans.

Sourcing - Helps identify your best supply source.

Raw Materials Purchasing - Allows you to monitor production supply availability and track inbound raw materials.

Manufacturing - Helps you plan production and manage operations from goods delivery to warehousing.

Warehouse & Distribution Management - Supports distribution networks tracking and reduces warehouse turnaround time.

Finance - Handles all aspects of your financial and accounting needs.

Information Retrieval & Performance Analysis - Allows your entire organization to work from one single, common information source.

With Lawson Fashion, organizations have the flexibility to implement precisely the applications that suit their current business needs, and add additional modules as the requirements change. With the addition of each new application, organizations can experience the benefits of enhanced integration and power of collaboration between the applications.

For more information on Lawson Fashion solutions and customer references, please visit www.lawson.com/Fashion.

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