Global Logistics-Nov 2008

In a move that will get CN a little closer to its customers, the Montreal-based Class I is acquiring three principal railway subsidiaries of the Quebec Railway Corp. (QRC) and a QRC rail-freight ferry operation. The purchase comprises 540 track miles of rail line CN formerly owned in eastern Ontario, eastern Quebec, and northern New Brunswick, as well as a ferry service on the St. Lawrence River in eastern Quebec. CN sold the rail lines to QRC in the late 1990s and has held a minority equity interest in the ferry operation since its start-up in 1975.

“The operations we’re buying are important to CN because QRC is our second-largest shortline partner, serving important customers at origin and directly feeding our main-line network,” says E. Hunter Harrison, president and chief executive of CN.

Bringing QRC’s assets into CN’s network will likely augment their role in this increasingly important intermodal market. With Canada’s Atlantic Seaboard expanding container-handling capacity from Halifax and Canso on through to Montreal and the Great Lakes St. Lawrence Seaway System, CN’s investment provides a direct connection to a growing customer base. But while the railroad plans to invest capital over the next three years to upgrade rail lines and replace existing locomotive fleets with more modern motive power, the question remains whether it can sustain the level of customer service a shortline brings to the equation. That’s a tradeoff intermodal shippers may be forced to accept.

Hanes Heads Its Own Way
Following a trend spurred by shifting sourcing currents and mandates to improve cost competitiveness, Hanesbrands is executing a new global cost-reduction strategy. Countering prevailing nearshore trends, and indicative of the apparel industry’s continuing reliance on low-cost sourcing initiatives in Asia, the company is consolidating production in the West and expanding in the East.

The Winston-Salem, N.C.-based apparel manufacturer, famous for its Hanes, Outer Banks, Champion, and Wonderbra labels, expects to complete its supply chain realignment at some time during the next year.

“We are making significant progress in expanding our supply chain production capability in Asia and consolidating into fewer, larger facilities located in lower-cost countries around the world,” reports Richard Noll, Hanesbrands CEO. “Globalizing our supply chain, and eventually balancing production between Asia and the Western Hemisphere, is a critical plank in our strategic efforts to reduce costs, improve product flow, and increase competitiveness.”

By the end of 2008, Hanesbrands expects to close seven plants—sewing facilities in El Salvador, Honduras, and Costa Rica; and two yarn plants, a knit-fabric textile plant, and an inventory storage warehouse in the United States. By 2009, the company will also close a sewing plant in Mexico and another knit-fabric textile plant in the United States.

“In addition to improving cost competitiveness, these moves will lay the foundation for completing our Asia build-out and improve the alignment of our sewing operations with our end-state flow of textiles,” adds Gerald Evans, Hanesbrands president and chief global supply chain officer.

Textile production from plant closings will be absorbed into existing plants in Central America. Hanesbrands has expanded its fabric production capabilities in the Dominican Republic and El Salvador, and plans further expansion in Central America.

The company will move most of the sewing production from the Central American plants that will close to new Asian facilities. Hanesbrands has opened or acquired four sewing plants in the past two years—two in Thailand and two in Vietnam. The company aims to increase its workforce in Asia from 4,000 to 6,000 by the end of 2008.

“Our startup of supply chain operations in Asia is progressing very well,” Evans says. “Since acquiring our first sewing operation in Chonburi, Thailand, in 2006, we have doubled production at that plant with the same number of operators as we bring to bear our production and plant operations expertise. Operations in Vietnam are starting quickly, with excellent quality from a capable workforce.”

The company is also constructing a textile fabric plant in Nanjing, China, which is expected to increase production in 2009 to supply fabric to the company’s expanding Asian sewing network.

U.S. Economic Development Skates On Ice
To fill the gaping void left by migrating manufacturing business, U.S. regional economic development groups are endeavoring to lure global investment. Transportation infrastructure, labor, and location are the usual selling points. But some enterprising alliances are tapping cultural similarities to attract business.

Capitalizing on a relationship with Swedish telecommunications equipment provider Ericsson, and the prestige of the Pittsburgh Penguins hockey organization, representatives from the Pittsburgh Regional Alliance (PRA) and the region’s business community trekked to Sweden in October to promote Pittsburgh as a center for innovation and commerce.

Against the backdrop of the Penguins’ season opener in Stockholm, the alliance conducted a series of roundtable meetings with members of Swedish industry and government to discuss telecommunications, mobile broadband applications, life sciences, and biotech initiatives.

The delegation also engaged organizations in Sweden about Pittsburgh’s strengths in sustainability initiatives, according to Philip Cynar, spokesperson for the Allegheny Conference on Community Development and Affiliates. Being a coal capital, Pittsburgh has a vested interest—- and is making advances—in clean coal technology and carbon capture sequestration.

“These advances can benefit other countries interested in exploring alternative and renewable energy sources,” says Cynar. “Likewise, the Pittsburgh region has strengths in wind, solar, and nuclear energy. Companies such as Converteam, Plextronics, Flabeg, and Westinghouse—all located in our region—have alternative energy products or components to supply to the world and to advance smarter, greener energy creation and usage.”

This isn’t the first time the PRA has touted the city’s cultural diversity to lure global business. In 2006, the alliance traveled to Europe with the Pittsburgh Symphony Orchestra (PSO). As a result, SYCOR Americas, a Germany-headquartered information and communication technology company, chose to locate its North American headquarters in Pittsburgh instead of Minneapolis or Montreal.

The next stop for the PRA and PSO? The PRC—People’s Republic of China.

U.S. and Vietnam Air Out Differences
Reflecting a new era of political and economic harmony, the United States and Vietnam recently agreed to lift restrictions on air cargo routes between the two countries—a move that will open up more opportunities for U.S. investment in Southeast Asia.

The Open Skies pact for all-freight services, initiated during an October visit by U.S. delegates, allows airlines from both countries to carry cargo to or from third countries.

“The agreement will strengthen and expand our already strong trade and tourism links with Vietnam and provide benefits to American and Vietnamese cargo carriers and shippers, while preserving our commitments to aviation safety and security,” the U.S. embassy reports.

The delegations—led by Vietnam’s Civil Aviation Administration and the U.S. Bureau of Economic, Energy, and Business Affairs—agreed to discuss further trade liberalization.

Outsourcing’s Shame
In some parts of the world, the decision to outsource is less about breaking down functional silos and more about tearing through cultural ones. Take Saudi Arabia, for example, where public humiliation and punishment dictate social and economic mores.

Despite a shortage of skilled logisticians, Saudi Arabian companies are hesitant to partner with third-party logistics providers, according to research by Hala Supply Chain Services, a Riyadh-based service provider. Deconstructing the ego to build public conformity apparently does not translate to the enterprise.

The company recently published a Saudi Arabian Supply Chain Intelligence Report (SCIR), which suggests that a significant cultural change is necessary before companies can improve operations. Such an overhaul may give U.S. businesses pause as they consider potential ventures in The Kingdom.

“Logistics activities are characterized by low levels of outsourcing,” the report notes. “This goes against international trends, where an increasing number of partnerships are being formed between companies with limited supply chain skills and 3PL firms with the experience to manage these new challenges. Such an approach has shown its value in alleviating the challenge of a skills shortage by elevating the resources available to companies and operators on both the regional and the global level.”

While Saudi Arabia has followed an economic development path similar to the United Arab Emirates, diversifying beyond oil production to embrace transportation and logistics, outsourcing resistance will stifle the country’s prospects.

“New approaches are required in order to revolutionize the supply chain in Saudi Arabia and meet future levels of growth,” the study summarizes.

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