Best Practices In International Transportation Management: Taking Visibility Beyond Track & Trace

Best Practices In International Transportation Management: Taking Visibility Beyond Track & Trace Written By: James Blaeser Publisher Sponsored by: Published December 2011

Executive Summary Shippers are demanding unprecedented levels of visibility into their supply chains, but today visibility means a lot more than just tracking and tracing freight in transit. Shippers are pursuing a holistic visibility that touches upstream and downstream business processes, inside and outside the enterprise. However, this new visibility is not something a shipper can simply buy and install. This is a tool that shippers create through effective, integrated management of international transportation processes. ii Exectutive Summary Challenges of ITM American Shipper has benchmarked more than 2,000 supply chain organizations in 2011 on a variety of subjects including and related to international transportation management. This report highlights key findings from this collection to create a complete picture of the challenges supply chain managers face today, and the benefits they can see from applying new technologies and process changes. Managing international transportation is an increasingly complex process. Distances and borders create opportunities for supply chain failures. Those challenges are clear. However, there are a handful of dynamics and trends that create a fundamental lack of visibility. Shippers are not the center of the international transportation universe as they are in the U.S. domestic market. International shippers are required to work around the carriers terms and timetables. The carrier controls the industry s center of gravity. In the ocean carriage industry this has minimized the carrier s incentive to providing the quality data that is fundamental to visibility. Multimodal, multi-leg transportation moves create an additional layer of complexity as each of these legs and modes requires hand-offs between carriers and logistics providers. More often than not, these companies are operating in different standards with no technology tying everything together, making it difficult to see across the process.

Third party logistics providers (3PLs) that were once the center of the international transportation transaction are being marginalized. Some see their future as enablers of visibility while others struggle to defend their business model and cut off visibility in the process. Goals of ITM Visibility Beyond Track & Trace The challenges of effectively managing international transportation are plentiful, complex and constantly changing. However the goals of an ambitious international shipper are pretty clear. Deliver the goods at the right time, place, and in good condition. Reduce costs, in terms of money, time, and resources, associated with transportation and related services. Reduce inventory levels or safety stocks. Increase productivity levels of management and administrative staff. Reduce the carbon footprint associated with transportation and related services. Deliver all of these benefits regularly and reliably. American Shipper s research shows that shippers who are meeting their goals are embracing a new definition of visibility. This includes visibility to upstream processes via the use of electronic purchase order management, in addition to downstream visibility to shipment status and related event management. These shippers are closely integrating ITM systems to their business processes and technology platforms in order to see across the supply chain. They are taking a holistic approach to visibility. Major benefits of upstream visibility include: Increase shipment velocity through the supply chain. Reduce inventory levels or safety stocks. Reduce transportation costs. Reduce carbon footprint. Major benefits of downstream visibility include: React faster and more effectively to events such as market demand shifts or natural disasters. Optimize logistics and distribution process at destination. iii Exectutive Summary

Best Practices In Building Holistic Visibility American Shipper s research points to four areas where shippers should concentrate their efforts to build visibility: focus, centralize, consolidate, and connect. iv Exectutive Summary Focus on Visibility Create programs with measurements of success. Engage executives and secure budgets. Create visibility to your visibility program. Centralization of ITM Processes Bring related processes under one point of command in terms of organization and systems structure. Consolidation of Systems Platforms Shippers are looking for more functionality from fewer systems to enhance visibility across modes and enable supply chain and related business process optimization programs. Consolidation also reduces complexity and associated costs. Connectivity & Integration ITM systems need to be closely connected to internal processes as well as external partners and service providers. The ITM system will drive visibility across these connections and integrations. Leverage 3PLs These providers can be important eyes-andears for shippers who lack control at origin or lack that ability to manage multi-modal transportation effectively. Small and medium shippers in particular should look to 3PLs as an avenue to tap IT resources otherwise reserved for the Fortune 500. Large shippers with a strong gravitational pull of their own should leverage their own ITM systems as a means to connect with 3PLs and other providers.

Table of Contents Executive Summary... ii Section I: Introduction...3 > Purpose of this report...3 > Background...3 > Terminology...4 Section II: International Transportation Management (ITM) Defined...5 > Why is International Transportation Management So Difficult?...5 Section III: How Do You Use Visibility?...8 1 > Upstream Visibility...8 > Downstream Visibility...11 Section IV: Building Holistic Visibility...12 > Focus on Visibility...12 > Centralization of Supply Chain Processes...13 > Systems Adoption and Consolidation...15 > Connectivity, Data Quality and Master Data Management...19 Table of Contents > Leveraging 3PLs...22 Section V: Conclusions...23 Appendix A: About American Shipper Research...24 Appendix B: About Our Sponsor...25 > SAP...25

Figures FIGURE 1: Transportation Modes Managed...6 FIGURE 2: Upstream vs. Downstream Visibility...8 FIGURE 3: Mode Optimization...9 FIGURE 4: Are You Shifting Modes To Reduce Carbon Emissions?...10 FIGURE 5: Green Functionality...10 FIGURE 6: Visibility Days Prior to Shipment...12 FIGURE 7: Central vs. Local Logistics Management Winners vs Average...13 2 FIGURE 8: Contract Freight Rates Central vs. Regional...14 FIGURE 9: Scope of Responsibility...15 FIGURE 10: Current International Transportation Management (ITM) Process...16 Table of Contents FIGURE 11: The State of ITM Winners vs. Average...16 FIGURE 12: Number of ITM Systems...17 FIGURE 13: Current Functionality Winners vs. Average...18 FIGURE 14: Number of Unique Integrations to Carriers, 3PLs, Portals, etc....19 FIGURE 15: Quality of Data Provided by Supply Chain Partners...20 FIGURE 16: Quality of Data Provided by Carriers...20 FIGURE 17: Accuracy of Invoices Based on Audit...21 FIGURE 18: What Do You Audit?...21

Section I: Introduction PURPOSE OF THIS REPORT Welcome to American Shipper s international transportation management (ITM) best practices report. This annual series will recap findings from our ongoing benchmarking research and offer actionable guidance on how to apply these concepts to your supply chain operations. This includes suggestions for improving processes, addressing technology, and ultimately delivering better results. BACKGROUND American Shipper has benchmarked more than 2,000 supply chain organizations in 2011 on subjects ranging from transportation procurement to import/export compliance. This report draws on key findings from many of these benchmarks to create a complete picture of the challenges supply chain managers face today and the benefits they can see from applying new technologies and process changes. This best practices report is based on findings from the following American Shipper studies: Environmental Sustainability: Leaders Prepare For the Greening Supply Chain February 2011 Transportation Payment: A Step Forward March 2011 Transportation Procurement: In Search of Value June 2011 Supply Chain Manager: Role, Compensation & Career August 2011 International Transportation Management: Winners See Strategic Value of Visibility November 2011 3 Section I: Introduction

TERMINOLOGY In order to clearly understand the concepts and recommendations outlined in this report it is important to understand American Shipper s definitions of certain frequently used terms and acronyms. 4 Section I: Introduction Centralization Bringing command and control of a global or multiregional function or process into one location or platform. Environmental Sustainability/ Green Operating in a disciplined manner that limits or eliminates harmful impact to the environment including, but not limited to, greenhouse gas emissions. For the purposes of this study the term green is synonymous with environ mental sustainability. International Transportation Management (ITM) Administration of cargo movements across borders by any transportation mode except parcel/small package. For the purposes of this study ITM includes five main functions: planning, booking/tendering, order management, event management, and visibility. Shipper The party paying to have cargo moved on their behalf. In the context of this study shippers are retailers, wholesalers, manufacturers, construction and engineering firms, and any producer of a tangible product or material. Third-party Logistics Provider (3PL) Outsourced manager of transportation and value-added services. In the broadest sense includes all transportation intermediaries. Visibility Awareness of, and control over, specific information related to freight prior to the shipment process and events or milestones that occur in transit. Winners Each American Shipper benchmarking exercise is designed to highlight actionable best practices by comparing companies that are performing well against the study average. This group of companies that are demonstrating best-in-class performance are referred to as winners in the context of our research reports.

Section II: International Transportation Management (ITM) Defined WHY IS INTERNATIONAL TRANSPORTATION MANAGEMENT SO DIFFICULT? Managing cross-border transportation of cargo is inherently more complex than domestic transportation. Distances between origin and destination are longer and include more handoffs, creating more opportunities for disruptions. International borders add regulatory complexity, currency exchanges and taxes that need to be taken into account. These challenges are well-documented and relatively easy to understand. However, there are a handful of other, potentially more important issues that make ITM particularly difficult in part because they limit visibility. 5 The Center of Gravity Containerized ocean transportation capacity is controlled by a relatively small number of companies, which makes them the driving force or center of gravity in this market. Shippers need to work around carrier requirements for scheduling, equipment availability, and data exchange. This is the exact opposite of domestic truckload markets, where carriers work within the shipper s requirements. Notoriously bad data quality levels are one clear product of this industry dynamic. Ocean carriers have never really had to provide quality information to their customers, so they do not. Exporters have (or should have) complete knowledge of their shipment specifics very early in the planning process. Importers, on the other hand, struggle to gain command of their international supply chains because they lack that control at origin. Import shippers often complain that they do not have useful information about shipments until it s too late to do anything constructive with it. This issue is particularly prevalent in low-cost sourcing markets that can lack sophisticated systems and reliable connectivity. Section II: International Transportation Management (ITM) Defined

Multimodal, Multi-Leg Complexity ITM is in large part a multimodal, multi-leg management challenge. Few, if any, supply chains are truly one-dimensional, relying entirely on one mode of transportation servicing origin and destination directly. In fact, every participant in American Shipper s International Transportation Management Benchmark Study managed freight on at least three transportation modes. These shippers are mixing and matching routes and modes to move freight the most effective way possible. However, these modes do not easily lend themselves to blending. Ocean freight and air freight are clearly different in terms of speed, but also require different equipment and handling services. 6 FIGURE 1: Transportation Modes Managed Section II: International Transportation Management (ITM) Defined Cross-border truckload Cross-border rail/intermodal Ocean transport (other, non-containerized) Other, please specify Reliability and Variability FCL Ocean 85% Airfreight LCL Ocean Parcel/package 8% 31% 36% 0% 20% 40% 60% 80% 100% 220 total respondents Charts that follow are sourced from American Shipper s International Transportation Management Study November 2011, unless otherwise noted. Much has been written about the importance of reliable service provided by ocean carriers but recent research conducted by the MIT Center for Transportation & Logistics suggests that delays at the port of origin and port of destination, or on inland transportation legs, can be equally or significantly more meaningful. What s more, visibility into the ocean leg is typically more robust and reliable than on the inland legs, particularly on the origin side. Delays wreak havoc on wellconceived supply chain plans, particularly if they occur in the blind spots most shippers have in terms of visibility to freight at the port. 65% 64% 63% 79%

Changing Role of 3PLs Nearly all international freight is handled by a 3PL at some point in its lifecycle, as has been the case for decades. Very few, if any, shippers are capable of managing all the requirements of their international supply chain themselves. Shippers have relied on 3PLs for a variety of support services, ranging from the basics of freight forwarding to more complex origin management services. Generally speaking, 3PLs today are part enabler and part obstacle. Shippers are becoming more capable, through the use of sophisticated trade software systems and Internet-based connectivity. These savvy shippers are looking to take more hands-on control of their international supply chains, which poses a clear threat to the traditional 3PL model. Forward-thinking 3PLs see this shift as an opportunity to offer data management and other services that provide a strategic benefit to the shippers. These 3PLs will become more important to their customers. Those 3PLs who are not embracing this trend risk becoming more of an obstacle than an enabler, as they will have to limit their customers visibility to the ITM process to defend their place in the shipper s supply chain network. INTERNATIONAL TRANSPORTATION MANAGEMENT GOALS The challenges of effectively managing international transportation are plentiful, complex and constantly changing. However, the goals of an ambitious international transportation manager are pretty clear: Deliver the goods at the right time, place, and in good condition. Reduce costs, in terms of money, time, and resources, associated with transportation and related services. Reduce inventory levels or safety stocks. Increase productivity levels of management and administrative staff. Reduce the carbon footprint associated with transportation and related services. Deliver all of these benefits regularly and reliably. Clear as they may be, these goals are often very difficult to accomplish. There is no silver bullet when it comes to managing international transportation challenges. Every supply chain is unique and likewise the solutions to these challenges will be unique. However, there is one universal attribute that comes up time and again in discussions with winners or best-in-class supply chain organizations: visibility. But this isn t your father s visibility. These winners demonstrate a holistic visibility to both downstream and upstream activities that makes the international transportation management system and process a strategic weapon. Achieving this new kind of visibility is not an easy feat, as this report will explain later. 7 Section II: International Transportation Management (ITM) Defined

Section III: How Do You Use Visibility? Visibility should be viewed in two ways upstream and downstream. Upstream visibility to the transportation process allows the supply chain manager to proactively optimize the sequence of events that will be set into motion. Downstream visibility gives supply chain managers a window into the process while freight is in motion, and allows them to reactively manage issues as they arise while creating the optimal plan for other business processes that come into play upon arrival. FIGURE 2: Upstream vs. Downstream Visibility 8 Section III: How Do You Use Visibility? Increase Velocity Reduce Inventory Reduce Transportation Costs Reduce Carbon Emissions UPSTREAM VISIBILITY Upstream Visibility Downstream Upstream visibility really comes down to understanding the specifics of each shipment as far in advance as possible. American Shipper s International Transportation Management Benchmark Report notes that this type of visibility is the calling card of a winning supply chain. The benefits of effective upstream visibility can be summed up in four key areas: increased velocity, reduced inventory, reduced transportation costs, and reduced carbon footprint. Manage Disruptions Capitalize on Opportunity Plan Logistics at Destination Increase Shipment Velocity When the specifics of a shipment are known in advance with a high degree of certainty, the most effective plan can be created to move that freight from origin to destination. This is particularly important as supply chains stretch further across the globe. Moving freight faster through the supply chain, with fewer disruptions, is generally more appealing than adding more freight, and ultimately, more inventory.

Reduce Inventory Levels Uncertainty in the supply chain equates directly to increased inventory levels meant to provide a safety cushion in the event of disruption. Companies with a high cost associated to loss of sale will be particularly sensitive to this benefit as it is tempting to err on the side of excessive inventory to ensure customer demand is always met. Reduce transportation costs The less expensive options in international transportation are invariably the slower modes. This is a core principle of transportation management move freight on the cheapest mode and route possible without jeopardizing sales through delays or disruptions. Visibility to shipment specifics allows the supply chain manager to make decisions about mode and route that will balance the market demand for the freight with the costs associated with moving the freight at the right speed. Many shipments move faster than they need to because the shipper lacks the visibility and as a result lacks the certainty that the goods will be delivered to the customer at the right time, place, and in good condition. Those shippers are paying an unnecessary premium that can be avoided. FIGURE 3: Mode Optimization Time Definite Air Freight Express 9 Section III: How Do You Use Visibility? Speed Sea/Air Ocean Value Ocean Cost

Reduce Carbon Footprint The transportation industry s reliance on fossil fuels creates a clear correlation between cost optimization and reduction in carbon emissions. Simply put, when shippers opt for slower modes, they are generally reducing their transportation cost and the carbon emissions related with the movement of that freight. FIGURE 4: Are You Shifting Modes To Reduce Carbon Emissions? 80% 75% Yes 10 70% 60% 50% 50% 50% No 40% 30% 25% 20% Section III: How Do You Use Visibility? 10% 0% Average FIGURE 5: Green Functionality Container utilization 27% Electronic documentation 32% Winners/Leaders 68% 42% 64% 42% 3PL 154 total respondents Source: American Shipper s Environmental Sustainability Study February 2011 Manufacturing Retail 60% Route optimization 55% 50% 44% Mode optimization 23% 58% 44% Energy efficiency 50% 42% 44% Carbon calculator 17% 27% 40% Reporting/disclosure 23% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 70 total respondents Source: American Shipper s Environmental Sustainability Study February 2011

DOWNSTREAM VISIBILITY Downstream visibility is communication and interaction with the supply chain while freight is in motion. Shippers with reactive visibility will see benefits in terms of their ability to manage unexpected events and optimize business processes that come into play when shipments arrive. React faster and more effectively Accurate, actionable information about a shipment will allow the shipper to react faster and more effectively to dynamic conditions impacting the supply chain. This includes disruptions such as natural disaster or labor unrest as well as market opportunities. Shippers with visibility to their freight in the supply chain will be able to quickly assess their status and make adjustments, in terms of transportation mode and routing, and secure the necessary capacity to act upon the new plan. Furthermore, shippers with a strong grasp on the status of their shipments will be able to adjust inventory levels faster than their competitors to ensure they are addressing demand conditions accurately. Logistics Optimization at Destination Downstream visibility will allow shippers to plan the sequence of events that occur when shipments arrive at destination more effectively. This includes every party that touches the freight between the port and the end customer, but the benefits will be particularly profound in terms of optimizing drayage services, deconsolidation, cross-dock operations, warehousing and related labor. Shippers looking for a demonstrable return on investment from their reactive visibility tools should look for a reduction in detention and demurrage charges. 11 Section III: How Do You Use Visibility?

Section IV: Building Holistic Visibility The case for visibility is compelling for just about any shipper but it is not easily accomplished. American Shipper s research points to four areas where shippers should focus in order to build visibility: focus, centralize, consolidate, and connect. FOCUS ON VISIBILITY 12 Section IV: Building Holistic Visibility First and foremost, shippers need to understand the nuances of international transportation and how these unique characteristics make it a wholly separate challenge from managing domestic transportation. Shippers, particularly those with complex import supply chains, who apply the same systems, processes, and principles used in domestic transportation will fail. Shippers need to understand the current state of their visibility programs in order to make progress. Benchmark your organization against your peers through publicly available programs like American Shipper s or those provided by other research firms. Find peers that manage supply chains with similar characteristics and compare notes with them on how they measure their visibility and their improvement initiatives. Use these measures to set targets in terms of improvement in the immediate, medium- and long-term picture. Executive support is key as this type of modernization program will inevitably require process changes, organizational backing, and financial investment of some kind. FIGURE 6: Visibility Days Prior to Shipment Winners '10 12.8 Winners '11 16.0 Shippers '10 10.7 Shippers '11 9.9 3PLs '10 9.3 3Pls '11 6.9 0 5 10 15 20 165 total respondents

CENTRALIZATION OF SUPPLY CHAIN PROCESSES Centralization of processes regularly appears as a best practice recommendation in American Shipper studies. For many shippers the supply chain is an increasingly global operation which can get unruly very quickly. Shippers need to look at ways to bring higher levels of command and control into fewer hands, particularly in an economic environment where companies are not hiring more hands. Globalization and Effective ITM American Shipper s research shows that winners are considerably more likely to manage the key segments of ITM in a centralized manner. This is particularly evident when it comes to upstream processes like planning, where shippers can create the most effective plan against which to execute. 13 FIGURE 7: Central vs. Local Logistics Management Winners vs Average 100% 80% 60% 40% 20% 0% 8% 16% 68% Winners 4% 4% 29% 24% 41% Average 4% 2% 16% 20% 56% Winners 4% 4% 34% 25% 34% Average 4% 3% 24% 64% Winners 4% 4% 4% 7% 26% 18% 47% Average 2% N/A Other Local Regional Central Section IV: Building Holistic Visibility Planning Execution Measurement 175 total respondents

Centralization of Related Processes Centralization of processes that occur upstream, such as contracting and procurement, shows a hard, measurable benefit. In American Shipper s Transportation Procurement Study, respondents who centralized that activity were considerably less likely to see rates increase in an environment where rates were increasing quickly. American Shipper s research on freight settlement also shows considerable tangible advantages to centralization of the measurement and payment processes. FIGURE 8: Contract Freight Rates Central vs. Regional 14 Section IV: Building Holistic Visibility 10% Increased by10% or more 23% Increased between 26% 5 and 10% 34% 34% Increased by less than 5% 17% 10% Remained unchanged 9% Decreased by less than 5% 10% 9% Decreased between 7% 5 and 10% 4% Decreased by 10% or more 2% 4% 0% 5% 10% 15% 20% 25% 30% 35% Centralized Strategy Regional/Decentralized Strategy 224 total respondents Source: American Shipper s Transportation Procurement Study June 2011

Global Role of Supply Chain Manager A centralized, global process requires a manager with global scope. Our research supports the notion that supply chain manager positions are increasingly global roles. More than half of study respondents report having a global scope and a further 13 percent regional. FIGURE 9: Scope of Responsibility 1% 4% 22% Global 13% 61% Regional National Local Other 15 SYSTEMS ADOPTION AND CONSOLIDATION With very few exceptions, American Shipper research shows that shippers who employ a systems-based approach to transportation management and related activities outperform their peers. Overall, these create efficiencies for shippers by allowing them to focus resources on the exceptions, rather than closely managing the whole process. This year s study shows that for many, less is more when it comes to ITM systems. 346 total respondents Source: American Shipper s Supply Chain Manager Study August 2011 Section IV: Building Holistic Visibility

System adoption Today, less than one quarter of shippers manage their international transportation processes in an entirely manual environment. Most have adopted some type of system to assist in the process, although this amounts to a patchwork of legacy, purpose-built, and ERP-based systems in conjunction with true ITM applications or platforms. Research results show the average shipper is still struggling to modernize their ITM systems. Winners, on the other hand, show a higher level of sophistication across the major segments of the ITM process. In particular, planning, order, and event management processes are considerably more automated among winners than their peers. 16 FIGURE 10: Current International Transportation Management (ITM) Process 2% Section IV: Building Holistic Visibility 16% 16% 5% 22% 38% FIGURE 11: The State of ITM Winners vs. Average A mix or hybrid of all of these Manual, we handle our entire international supply chain with phones/faxes/email In-house developed and maintained software 3PL(s) represent us in foreign countries and manage most/all of the activities Remote via systems or platforms provided by technology vendor(s) None of these 220 total respondents 100% 80% 60% 40% 20% 0% 3% 5% 4% 4% 10% 4% 12% 5% 12% 9% 25% 15% 26% 24% 16% 44% 32% 56% 49% 29% 33% 67% 47% 80% 52% 40% 61% 32% 38% 41% 41% 34% 16% 20% 8% 8% Winners Average Winners Average Winners Average Winners Average Winners Average Planning Order Mgmt Booking Event Mgmt Visibility N/A Outsourced Automated Manual 220 total respondents

Consolidation of Systems and Platforms Shippers want more functionality from fewer systems. This has probably been the case for many years but it has not really been possible until now due to recent market developments. ITM vendors are adding features, functionality, modes, geographies, and other attributes that expand their footprint through acquisition and development to keep pace with customer demand. Shippers and 3PLs are embracing this trend, none more so than winners, who are using about four ITM systems in 2011 compared to more than five and half a year ago. Put another way, shippers are using a full system less than they were last year. Fewer systems ultimately mean fewer integrations and less complexity. Limiting complexity will be particularly important for those supply chain managers whose roles are expanding to a global scope. Limiting the number of systems used to support ITM will also help shippers tie together multimodal transportation management functions, bringing this key function closer to other business processes that are affected upstream and downstream. FIGURE 12: Number of ITM Systems 3PLs '10 5.2 3PLs '11 Average '10 Average '11 Winners '10 3.6 4.6 4.6 5.7 17 Section IV: Building Holistic Visibility Winners '11 3.9 0 1 2 3 4 5 6 99 total respondents

Don t overlook the basics Just like the ITM process impacts a shipper s ability to manage upstream and downstream business processes, there are some key upstream processes that will unlock an ITM system s capabilities. Shippers clearly have an interest in basic visibility tools that provide a window into the ITM process, and they are looking to gain more control. Shippers should not forget some other basic functions that, when supported by technology, can set the stage for a more effective ITM. 18 Section IV: Building Holistic Visibility Shippers need to procure transportation capacity before they can execute on those freight movements. Every mode comes with its contracting nuances, but, generally speaking, a systems-based approach can instill discipline in the procurement process that yields benefits in the execution phase. Shippers who contract for the right capacity, with the right terms, spend less time scrambling to catch up and more time optimizing their supply chains. Likewise, a solid platform for electronic booking or tendering and related trade documentation creation and management creates real efficiencies throughout the process. FIGURE 13: Current Functionality Winners vs. Average 79% Tracking & tracing 66% Electronic shipping 62% documentation 51% Connectivity to customers, 58% Winners vendors, partners, etc Order management Analytics Freight invoice management Electronic booking Shipment scheduling Event management Collaborative transportation 49% 54% Average 47% 62% 42% 38% 42% 58% 41% 58% 40% 54% 38% 50% management Contract management Route/schedule 30% 29% 23% 29% optimization 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 144 total respondents

CONNECTIVITY, DATA QUALITY AND MASTER DATA MANAGEMENT Transportation management domestic or international can no longer be treated as a standalone process. Likewise, the systems that support ITM can no longer be considered point solutions. As this report has demonstrated, upstream and downstream visibility help enable supply chain managers to optimize their supply chains and other business processes. American Shipper s research has focused on the shipper s ability to share electronic purchase orders with suppliers and logistics service providers. Roughly two-thirds of survey respondents have reported each of the past three years that they have this capability. The ability to share purchase orders is a cornerstone of upstream visibility because all of the determining factors of how and when freight can be shipped are included in this document, which can change over time. It is incredibly important, particularly for importers with no control over the origin, to have this visibility to their orders before they even enter the supply chain. External Connectivity Visibility requires connectivity to carriers and other logistics providers. While winners are aggressively limiting the number of internal ITM systems, they are more connected to external partners than the average. Portals and other connectivity hubs are a good option for shippers looking to get more bang for their information dollars, as they will offer more carriers or 3PLs per integration. FIGURE 14: Number of Unique Integrations to Carriers, 3PLs, Portals, etc. 19 Section IV: Building Holistic Visibility 3PLS 13.1 Winners 9.2 Study Average 8.2 0 3 6 9 12 15 180 total respondents

Data quality from partners/vendors Data quality in the international transportation market is obviously bad. What s surprising is that suppliers and customers are actually scored lower than carriers. That is a big problem for shippers who see the strategic benefits of upstream visibility. Accurate, complete, and timely information about the transaction that creates the freight is clearly crucial. Data quality provided by carriers of all modes is not as bad by comparison, but still nothing short of terrible based on survey responses. 20 Shippers struggling with poor data quality levels from providers that are effectively on their payroll should take steps to rectify the situation. Create an objective measurement of your carriers performance in terms of data timeliness, accuracy, and completeness across key milestones in your supply chain. Measure them diligently and communicate their performance back to them. Ultimately shippers should use those scores to make smart purchasing decisions. Section IV: Building Holistic Visibility FIGURE 15: Quality of Data Provided by Supply Chain Partners 100% 80% 60% 40% 5% 33% 41% 2% 15% 36% 45% 38% 20% 20% 32% 19% 0% 5% 7% Suppliers 2% Customers 3PLs 1% Excellent Good Fair Poor Very Poor 175 total respondents FIGURE 16: Quality of Data Provided by Carriers 100% 7% 5% 6% 5% Excellent 80% 60% 33% 41% 46% 49% Good Fair Poor 40% 20% 0% 38% 15% 7% Rail/Intermodal 41% 10% 3% Motor Carriers 39% 9% Air Carriers 35% 10% 1% Ocean Carriers 1% Very Poor 175 total respondents

Evidence of Poor Data Quality The measurement and settlement segments of ITM are generally where poor data quality shows up. American Shipper s research shows that roughly 10 percent of carrier invoices are incorrect based on shipper audit results. That might sound good compared to anecdotal evidence, but in comparison to other service industries this is atrocious. However, shippers are hardly diligent about screening for terms specific to ITM such as taxes, Incoterms, or currency conversion, suggesting that the actual level of correct invoices may be far lower than 90 percent. FIGURE 17: Accuracy of Invoices Based on Audit 2% 6% 95% or more 21 16% 90 95% 34% FIGURE 18: What Do You Audit? Accessorials (rate, validity, etc) Transportation rates 41% 80 89% 70 79% Less than 70% 74 total respondents Source: American Shipper s Transportation Payment Study March 2011 90% 93% 99% 100% 94% 90% 3PL/Intermediary Manufacturing Retail Section IV: Building Holistic Visibility Duplicate invoices 75% 88% 89% Fuel surcharge 80% 85% 82% Incoterms 35% 34% 31% Taxes 25% 25% 33% Currency conversion 24% 35% 39% 0% 20% 40% 60% 80% 100% 175 total respondents Source: American Shipper s Transportation Payment Study March 2011

Master Data Management Connecting to a large number of trading partners and providers operating in different IT environments and using different data standards will ultimately create a mess. Master data management functionality can help shippers make sense of data that was previously impossible to handle, especially as the number of external partners increases. These tools collect, normalize, store, govern and control data from both internal and external sources. LEVERAGING 3PLS 22 Section IV: Building Holistic Visibility 3PLs are well entrenched in the ITM ecosystem and are not going away anytime soon, regardless of how much control shippers take on via their use of sophisticated technology. That said, shippers need to take a hard look at how they use their 3PLs. Large shippers with complex supply chains should consider third party ITM platforms in terms of where they can connect and interact with their 3PLs. Smalland medium- sized shippers should consider leveraging 3PLs as ITM technology providers in addition to their logistics services. Winners of all sizes are evaluating the relative strengths of their ITM organizations and tapping 3PLs (or 4PLs as the case may be) to fill in the gaps.

Section V: Conclusions Based on the collected research body American Shipper has built in 2011 there are a handful of big ideas that shippers should consider as they aim to fine-tune their supply chain operations and ITM processes. 1. Shippers need to understand the unique characteristics and complexities of their supply chains in order to truly optimize their ITM process. The degree of difficulty for a waste paper exporter and a high-end clothing importer will be dramatically different. Likewise, their technology, organization, and process requirements will be very different. 2. Transportation management systems need to be integrated more closely to other related business processes and, ultimately the ERP system, to create visibility to upstream and downstream processes. 3. Less is more in ITM. Shippers can get more functionality from fewer systems and platforms today, which cuts down on integration complexity and will allow shippers to optimize across modes and geographies. 4. ITM requires connectivity with many service providers and trading partners. Hubs and portals offer value in terms of connectivity to communities, but the data that s transmitted through those connections is more important. 5. Shippers struggling to build visibility due to poor quality data provided by carriers, 3PLs and/or suppliers should scorecard those providers on their performance and use that information to make smart procurement decisions. These shippers should also look at their own operations to ensure they are truly accounting for the unique data ITM requires. Further, shippers with large and/or complex supply chains should look to add master data management functionality to their IT portfolio. 6. Shippers are taking more control of ITM functions, but 3PLs are not going away. Rather, winners are embracing 3PLs and their ability to manage critical supply chain data. 23 Section V: Conclusions

Appendix A: About American Shipper Research BACKGROUND Since our first edition in May 1974, American Shipper has provided U.S.-based logistics practitioners with accurate, timely and actionable news and analysis. The company is widely recognized as the voice of the international transportation community. In 2008 American Shipper launched its first formal, independent research initiative focused on the state of transportation management systems in the logistics service provider market. Since that time the company has published more than a dozen reports on subjects ranging from regulatory compliance to sustainability. SCOPE 24 Appendix A: About American Shipper Research American Shipper research initiatives typically address international or global supply chain issues from a U.S.-centric point of view. The research will be most relevant to those readers managing large volumes of airfreight, containerized ocean and domestic intermodal freight. American Shipper readers are tasked with managing large volumes of freight moving into and out of the country so the research scope reflects those interests. METHODOLOGY American Shipper benchmark studies are based upon responses from a pool of approximately 30,000 readers accessible by e-mail invitation. Generally each benchmarking project is based on 200-500 qualified responses to a 25-35 question survey depending on the nature and complexity of the topic. American Shipper reports compare readers from key market segments defined by industry vertical, company size, and other variables, in an effort to call out trends and ultimate best practices. Segments created for comparisons always consist of more than 50 responses to keep the potential margin of error to a minimum. LIBRARY American Shipper s complete library of research is available on our Website: AmericanShipper.com/Research. Annual studies include: Environmental Sustainability Export Compliance Import Compliance International Transportation Management Transportation Invoice Payment Transportation Procurement CONTACT Jim Blaeser Publisher American Shipper BlaeserJ@Shippers.com

Appendix B: About Our Sponsor SAP As market leader in enterprise application software, SAP helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 172,000 customers (includes customers from the acquisition of Sybase) to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com. SAP Transportation Management (SAP TM) is a powerful, last generation integrated planning and execution transportation solution to manage all activities connected with the physical transportation of goods. Companies can plan, consolidate, optimize inbound and outbound, domestic and international shipments while considering real-world constraints, costs, penalties. SAP TM streamlines and automates transportation tendering, execution, tracking, and settlement processes and ensures international trade and hazardous material handling transportation compliance. Learn more about SAP Transportation Management 25 Appendix B: About Our Sponsor

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