Asia Logistics Wrap

Discussing Japan at Asia Business Intelligence Blog

The final installment of my article on changes in Japanese business practices from the Bubble Era to today is posted Asia Business Intelligence (ABI). Because my experience isn't necessarily indicative of all Japanese companies, I am interested in any differing perspectives that can positively contribute to the discussion initiated by my article. I am also interested in any comparisons with China and South Korea.

I will post each installment of the article here next week for future reference at this site. In the meantime, I suggest interested readers look back to the following two posts:

Chinese Market, Japanese Company, American Methods

Approaches to HR in Japan's Logistics Sector

People Power in Logistics

The first two are similar to case studies and the last one is generally about HR in logistics, with some additional thoughts on my own experience.

Model Businesses in "Green" Logistics Named

Japan, due to its small size and yet high population density, is intensely focused on facilitating environmentally friendly business practices in its many industries, including logistics. As a result, the Ministry of Economy, Trade and Industry (METI) is active in promoting those firms that take leadership positions in what is commonly called "green logistics" here in Japan. The title of this program is called "Green Logistics Partnership."

As reported recently in the August 7 issue of Logistics Japan, METI recently named 10 logistics companies as model businesses in terms of green logistics and awarded them with supplemental funds to support further green initiatives. The 10 firms/partnerships are listed below (partially linked):

1. Ryoshoku Ltd.
2. Collabo-Delivery
3. Fujitsu/Excel Japan (part of DHL Worldwide)
4. Sumikin Bussan and Hankyu Travel
5. Japan Pallet Rental
6. Confectionary Loginet
7. Diakeito Co., Ltd. and Kyonan Warehousing
8. Fuji Film Logistics and Nittsu
9. Nihon Butsuryu and Nihon Kamotsu
10. Yamato Transport

Firm Highlights:

Besides its efforts in condensing logistics activities into a full-line, chilled logistics center catering to processed foods, confectionaries, and alcoholic goods, Ryoshoku has built a conveyance system of transport boxes utilizing RFID. Also, by sharing standards, the center aims to improve capacity utilization and targets logistics efficiency via mutual transport that comes with such a logistics integration center. Indirect benefits include a reduction in CO2 emissions due to better capacity utilization in transportation.

Collabo-Delivery stands out by focusing on the efficiency of internal logistics for large buildings, implementing shared collection and distribution via an established stock point. While reducing the number of delivery trucks inside buildings, delivery in basement level parking structures is improved and sitting times shortened.

Fujitsu/Excel Japan (DHL), in centralizing logistics information extending from parts supply shipping to product distribution, has built a "Focused Dispatch Control Support System" designed for supply chain optimization. Based on the application of the new system, the environmental burden across the supply chain is lowered and CO2 reduction in progress.

Sumikin Bussan/Hankyu Travel are focusted on the efficiency of apparel logistics between Japan and China. Both have established a logistics foothold in China with work separated by store and bring product into ports close to areas of domestic Japan where consumption is high. Via an effort to optimize logistics across the entire supply chain, the firms are able to bring about logistics efficiencies and reductions in CO2 emissions.

The first phase of supplemental funding will total approximately $4.3m based on the current exchange rate of 117 yen/$.

Japan Trucking Association on Rising Fuel Prices

Starting the beginning of this month, there was another rise in fuel prices that has put even further pressure on the trucking industry to take effective countermeasures towards alleviating the impact of fuel price volatility on trucking companies. The recent increase was an exceptional 6 yen/liter (approximately 20 cents per US gallon) and in the August 7 issue of Logistics Japan, the subtitle beneath the headline was "Increase Exceeds Trucking Association's Room for Patience."

Until now, the dramatic rise in fuel prices has been counteracted in Japan in primarily two ways: 1) take internal action within company to reduce any waste in fuel usage and 2) join with other companies to form a purchasing cooperative to bring additional discounts. However, this only focuses on the supply-side and fuel usage levels, which eventually provide diminishing returns in terms of reduced costs. The Japanese trucking industry as a whole hasn't been able to successfully pass along these fuel price increases to customers as has been the trend in the USA. Especially the "long tail" of the trucking industry--the small- to mid-sized companies--face the greatest pressure in terms of maintaining margins.

As the article states, gradually industry voices are saying that the trucking industry "now can't help but approach customers anew for negotiation on rates." Whether this can happen will mean the life or death of some companies unable to keep pace with the business changes necessary to counteract higher fuel prices. These companies typically do not possess the economies of scale to gain pricing leverage nor the management systems to develop and diversify new ways of doing business. The Trucking Association is encouraging the entry of more smaller firms into fuel purchasing cooperatives to receive discounts, but pressure is coming from fuel suppliers suggesting that these discounts can go only so far. Eventually, it is my opinion, these increases need to be pushed on to the end-consumers.

Tools You Can Use

I want to point out a couple links provided recently by Rob at Riskape. Both can be discussed under the "enterprise resilience" umbrella.

The first link directs us to a global economic/political risk map published by Aon. This map is very interesting and breaks down the key elements of economic/political risk for each continent's state entities. Since symbols are used, the map can be very concise and able to provide a big-picture feel for where the pockets of risk are most concentrated. When considering the keys to strengthening resilience for specific operational environments, this type of overview is helpful in reviewing a company's enterprise resilience systems--not just internally, but across its extended enterprise, which includes the supply chain architectures linking suppliers, partners, and customers with the company.

The second link directs us to process mapping software that is downloadable for free from Savvion. Actually, I had been looking for this type of free software in preparation for an activity-based costing project I am working on. This type of free resource is especially great for small- to medium-sized firms like the one I work for, lowering the cost of modeling processes towards strengthening such firms' resilience.

China Logistics Conference Announcement (UPDATED)

Scanning the internet, I came across the China Business Services Blog which recently posted on the "First International Logistics China Congress 2006," described as follows:

ILCC will provide a unique platform that captures and present a comprehensive view about the current Chinese logistics market, its trends and investment opportunities, an accurate interpretation of the latest related government policies as well as all the major players in China.

The event is being held in Beijing from October 18-20 and I wish I could make it as it sounds to be very interesting. In the meantime, please visit the China Business Services blog--there are a variety of links and posts on the business side of China.

UPDATE: Of additional note, the China SCM blog has a summary of the recent CSCMP conference in Shanghai here and here (which I had wanted to go to until I ended up renewing my Japanese work visa in Tokyo).

TNT Close to Divesting Logistics Unit (Updated)

Having gone into some TNT initiatives in Asia and also discussed its desired divestiture of its logistics unit, today I want to point out a Financial Times update titled "TNT Sale of Logistics Division Imminent." Since this article is behind a subscription wall, I will go ahead and provide the key points of the article:

"TNT, the Dutch postal group, said on Wednesday that it expected to reach an agreement soon to dispose of its contract logistics division, which could be worth up to €1.8bn...people familiar with the situation have said that Apollo Management, the private equity company, and PAI, the European buy-out house, were two of the parties in talks to take over the unit.

"...Christopher Combe, analyst at Bear Stearns said that a bid of €1.8bn, including debt, would raise proceeds of just over €1.5bn in cash, versus his estimate of just under €1.1bn. If TNT were to use the whole proceeds for a share buyback, the upside to expected earnings per share would be about 13 per cent, which would fully offset the lost earnings from the division next year."

It will be interesting to see how the logistics unit will be handled once taken over by whoever happens to be the official acquirers. Especially in regards to Asia, I will be looking for articles that reflect on the eventual impact of this sale--in terms of the divested logistics unit and that of the remaining postal unit.

UPDATE: I woke up this morning with news that the deal is confirmed and will be conclusive upon shareholder approval. Jeff Berman from Logistics Management Online has some of the details:

Global contract logistics provider TNT N.V.  announced today it has signed a Sale and Purchase agreement to sell its TNT Logistics Division to Apollo Management, L.P., a New York- and Los Angeles-based private equity firm, for approximately $1.9 billion ($1.48 billion euros).

TNT spokesman Russ Dixon told Logistics Management that:

“We are moving forward to get better at what we have been doing all along...We have been methodical in communicating with our customers [about the sale] since early December, and we do not expect to see an erosion in business as a result of the sale. The retention rate [for TNT Logistics customers] has been very high, and that speaks to the fact that there is confidence on the customer side that this will come to a positive resolution.”

As for what will happen on the Apollo side, operationally things are still up in the air. Organizationally, some initial changes are already in process:

TNT Logistics group managing director and North America CEO, David Kulik, will resign from the TNT Board of Management to become CEO of the new company, which will officially change its name in the next 30-to-60 business days, according to Dixon.

“This transaction gives us the opportunity to further evolve into a leading global service provider in logistics, meeting the specific needs of our customers,” said Kulik in a statement. “Leveraging on our expertise, infrastructure, customer base, and Apollo's commitment we are poised for a competitive and profitable future.”

The consolidation trend in the 3PL industry that has been often mentioned on this site is obviously evident in this deal, but there are those who emphasize caution when thinking acquisition:

While this sale is reflective of the ongoing trend of consolidation among global third-party logistics companies (3PLs), it is counterproductive for companies to buy other 3PLs to increase their breadth of capabilities, said Evan Armstrong, president of consultants Armstrong and Associates, Inc.

“This sale is splitting apart TNTs freight forwarding operations from its contract logistics operations,” said Armstrong. “It is not yet clear what Apollo’s plan is to recoup its investment at this point.”

If you have been a TNT user up until this point, there could be some negative impacts as a result of this deal. The above Mr. Armstrong goes on to speculate what impacts those might be:

Regarding the sale’s impact on shippers, Armstrong said it is dependent on what a shippers’ strategy is going to be, how they want to manage a supply chain, and how many providers to use. The overall trend for multinational corporations, he said, is to select 3PLs that have a breadth of integrated capabilities. He said that factors like integrated freight forwarding with value-added warehousing, how many 3PLs a shipper may need, along with what their needs are can be viewed as a positive or a negative.

“For a domestic U.S. company or company that is doing warehousing in the U.S. or Europe, this [sale] may be a positive,” said Armstrong. “But if you need some type of freight forwarding included in that and you were using TNT before, it may be a big question mark right now.”

As Apollo begins to make operational moves, I hope to provide some updates at this site over the next few months--specifically in regards to Asia. 

Discussing Japan at Asia Business Intelligence Blog

Continuing on my previous post, Rich at Asia Business Intelligence has posted Part II of my reflections on changes in Japanese business. I really enjoyed writing these posts for ABI, so please take a chance to visit the site and browse the number of posts and podcasts Rich has put together.

From here on, I will continue to cover topics and articles from the Japanese press on logistics and other peripheral topics of interest. This is the result of me wanting to "drill down" lately in terms of the Japanese market, but I will also occasionally bring in some commentary on China and South Korea. If there are any particular topics in regards to Asia logistics you happen to be interested in, please let me know!

Seamless Logistics Between Japan and East Asia

A regular topic in Japan's logistics industry is the concept of "シームレス化"--translated loosely as "making seamless" in English. In particular, what many in Northeast Asia are seeking is seamlessness in the cross-border logistics between Japan, South Korea and China. Thus, the issues around creating seamlessness in regional logistics appears in industry seminars, studies and research. Due to my obviously strong interest in Northeast Asia logistics, I was happy to see an article in the 7/31 issue of Logistics Japan that touched on this topic. A translated summary is below:

Making Logistics Seamless: Cooperation with East Asia is Indispensable

On July 25th, the Japan Society of Civil Engineers and the Japan Project-Industry Council sponsored a symposium titled "Japan Logistics in the Era of Seamless Asia" with approximately 400 people in attendance. The event was dedicated to exploring the direction Japan must aim for while emphasizing the importance of seamless logistics with East Asia.

It was pointed out that, "in carefully considering the economic growth of the Asia economic sphere, the direction of the various Asian countries' development including Japan should be discussed." In addition, "with Japan's cooperation with East Asia having become indispensable, these kinds of symposiums with Japan's future economy under consideration are very important."

Other comments included that "manufacturing and logistics "make the world go 'round." With Japan's economy in a recovery, there are large expectations for the role of logistics and for fulfilling it's "duties." Speedy policy making is necessary in aiming towards a seamless logistics system with Asia."

Some of the interesting statistics pointed out at the symposium showed Japan's 2005 trade structure being at 17.9% with the U.S., but at 46.6% with Asia, indicating that cooperation with various East Asian countries is urgent business. In particular, logistics functions on the Japan Sea side close to China and the internationalization of Haneda Airport are important. If the Japan Sea side and Pacific Ocean side of Japan could be linked with a continuous road network, the flow of people and goods could see a great change.

An example of barriers to this seamlessness are the operating hours at Narita and Haneda, neither of which operate on a 24 hour system. Japan needs to move ahead in creating an environment where corporations can more easily deploy links in their global supply chains.

All together, it was voiced that "the elimination of the problem regarding passage through national boundaries is necessary, specifically in regards to the following domestic areas:

• Molding of a seamless traffic network
• Building an international infrastructure foundation for ports and airports
• Customs system

The infrastructural barriers in Japan raise the cost of doing business in Japan, including at its ports and airports. With transhipment competition increasing, Japan can no longer demand from its customers the same price in doing business when they can go elsewhere with more east at lower costs. In order for its ports and air ports to avoid becoming obsolete as global supply chain links, the calls for "seamlessness" and "internationalization" have increased. Japan will not win the capacity game, so its focus will be on providing the "value-added" component. As I have said before, time will tell in regards to the execution of this strategy.

Visiting Yasukuni--Here we go again... (UPDATED)

Ah, how fast a year goes by these days. Today is the anniversary of the end of Japan's WWII ambitions and the morning was full of commotion as Prime Minister Koizumi made a 7:40am visit to Yasukuni Shrine where Japan's war dead are honored, including the convicted set of war criminals. I was getting ready for work and preparing to leave as everything was filmed on TV live. South Korea and China were on cue with their statements denouncing the visit.

All last week and through today the TV has been filled with war-centered TV dramas and programs exploring the meaning of war, Japan's relations with its Asian neighbors, and the atomic bombings of Hiroshima and Nagasaki. I made my feelings on this issue known last year, and they haven't changed. Even as I write this right now, there is a program on TV focused on the Yasukuni topic with a variety of Japanese citizens and Japan's Foreign Minister. Will update this tomorrow...

UPDATE: The program I mentioned above is called "日本のこれから" and can be loosely translated as "The Way Ahead for Japan," and as I also mentioned, Japan's Foreign Minister, Mr. Aso, attended dressed in business casual and sitting among the guest "experts." It was interesting in simply observing the atmosphere of the gathering, and the majority of the discussion revolved around Japan's standing in relation to China in particular. Questions asked included:

1. Do you consider China a rival or partner in relation to East Asia?

2. Should Japan move ahead aligned more with America or Asia?

The phone poll on #1 showed most see China as a "rival," which is pretty vague and wide in definition. On #2, an alignment towards America was slightly favored over Asia. On stage, I would say most of the crowd perceived China as a partner, while answers varied evenly between Asia, America and "other" regarding which axis Japan should align its policies. Foreign Minister Aso generally took a stronger line on China and North Korea, saying that the word "rival" should not necessarily be construed as a negative thing, mentioning that competition should be cultivated between countries in Asia. There were some foreigners on stage as well, but they didn't have the opportunity to speak much and when they did, their Japanese ability hindered a clear delivery of their points or message.

A perfect example of how isolated Japanese are at home, or of how much they isolate themselves while at home, was when a college student explained her experience with fellow Chinese students in an overseas exchange program. They had confronted her on how she felt about issues between Japan and China, and were clearly aggressive in their beliefs regarding Japan's wrongdoings. The girl, from my impression, wasn't able to articulate her thoughts on the subject and took the exchange as threatening. On stage, she wondered out loud whether she could ever make friends with Chinese if they hate her from the beginning.

I think she has a point, but the problem also lies in her inexperience and lack of knowledge regarding national and regional issues. Japanese who haven't educated themselves in advance will find conversations with the more passionate Chinese and South Koreans fairly intimidating. At the same time, Chinese and South Koreans need to take different tactics in conversations with the many naive Japanese peers they meet overseas--while challenging Japanese assumptions they should be willing to educate Japanese about their respective countries without intimidation. This is a lot to ask, but necessary. Of course, this not to say that many Chinese and South Koreans aren't isolated, or don't isolate themselves.

Anyway, I recorded the program and plan to go back and watch another day and see if I can pull any more insights from the conversations regarding Japanese perceptions.

UPDATE II: For additional perspectives, follow the links below:

Big Lizards: Japanese Prime Minister Defies Asian Pressure

The Korea Liberator: Yasukuni? Here are some North Korean Dokdo Stamps!

George Will: Japan's Ever-Present Past

Japan Times: Time to Discuss Shrine's Fate and A Time to Learn from the Past

No Risk in Reading Riskape

To my pleasure, I have recently come across the great site Riskape, a blog managed by Rob Parrish. Rob, as described below, possesses a diversity and length of experience in supply chain management that makes quite me envious:

Twenty years of international logistics and transportation experience with the US military and leading international air express, freight forwarders and logistics technology providers.

Undergraduate degree in History/Economics and MSc from London Business School in international business strategy and logistics.

Has lived and worked in Asia, Europe and the US. Career focus on international supply chain strategy and securing sources of supply and global transportation networks.

As is stated above, he drills down heavily into the efforts involved in securing supply chains, a subject I have discussed on the surface in relation to the role of logistics in post-conflict/post-disaster scenarios. It is of course a topic that remains at the forefront of supply chain management even within and between developed countries. I look forward to highlighting future posts at Riskape (as he has done for me already) and encourage readers here to head on over and take a look. What's the risk?