Building agile logistics
When Michael Robinson became Agility's chief operating officer for its U.S.-based Global Integrated Logistics business group in late July 2008, he contacted a knowledgeable industry hand to help the company build a higher profile North American ocean freight services market.
That person was 30-year industry veteran Michael Gargaro, who had experience at implementing these types of initiatives across large logistics organizations, such as Votainer, Fritz Cos. and UPS. Prior to joining Agility, he was vice president of global ocean freight services at UPS Supply Chain Solutions.
'It was apparent to me that the U.S. ocean freight operations of Agility had some challenges,' Gargaro said in a recent interview from his office in Irvine, Calif. 'I was very interested in getting involved.'
Based in Kuwait, Agility has long had a strong ocean freight presence throughout the Middle East, Asia and Europe. However, the company's U.S. ocean freight operations had not developed at the same pace.
After arriving at the company in October 2008, Gargaro spent the first several months visiting Agility's U.S. offices to assess the operation and develop a plan to improve ocean freight.
The plan first called for forming a trade management group with a focus on U.S. ocean freight activities. To build this group, Gargaro brought together experienced people from within Agility and colleagues who had worked with him at other firms.
He also sought to immediately expand the use of the company's online pricing system. 'We put all of our sell rates and buy rates, in addition to all of our ocean service contracts and amendments, into the system,' he said. 'We were able to complete this by the end of the first quarter of 2009. By the time negotiations were underway for the new transpacific rates, we were ready.'
Gargaro also sought to improve Agility's liner carrier management in the U.S. trades and how pricing within this activity is managed with its shipper clients.
'We were using all of these carriers and we didn't have a real ocean carrier strategy,' he said. 'It became much more of a challenge in mid-2009 when we started getting barraged with GRIs (general rate increases), peak season surcharges, BAF (bunker adjustment factor) and equipment repositioning charges.'
The chaotic ocean freight market of 2009 also changed the way some of Agility's customers wanted their transportation rates managed.
'We have some shippers without annually fixed rates,' for whom Agility has instituted a program of quarterly tariffs, he said.
'We have a team of people that manages carrier relationships and understands the issues facing them, but we will challenge the carriers when necessary,' he explained. 'We must maintain our competitiveness, as well as our customers', in the marketplace. Rate increases and other measures made by the carriers must be justified.'
Agility is carefully monitoring the Transpacific Stabilization Agreement's efforts this year to substantially raise rates in the trade during the 2010 contract season.
'Price is driven more by supply than demand and carriers have withdrawn supply,' Gargaro said. 'When there's a glimmer of growth in the trade and some carrier introduces new capacity, how will that affect the market?'
He believes the transpacific is still a promising trade for a company like Agility, which operates one of the largest non-vessel-operating common carriers, Hong Kong-based SeaQuest Line, at 600,000 TEUs worldwide a year.
'Business in the transpacific may be down several percentage points, but it's still a huge trade with a lot of potential for growth,' Gargaro said. 'We're focused on industries such as retail, energy, technology, automotive and life sciences in this market.'
In 2010, Agility will expand its contract logistics capabilities. 'We have right-sized our facilities in the U.S. to better position ourselves to handle larger volumes for these types of customers,' Gargaro said.
'To do the job, it's not so much about moving into bigger warehouses,' he said. 'In most cases, we're simply making better use of the existing space.'
Of its estimated 10 million square meters of global warehouse space, Agility has only about 480,000 square meters of space across the United States and Canada.
'What customers are looking for is solutions to problems,' Gargaro said. 'We establish a rapport with a client and at some point in that relationship, the client is going to need help with a really nasty issue. If we can find a solution to that issue, then that may lead to us handling another piece of his business. That to me is what drives the 3PLs.'
At $6.8 billion in annual revenue, Agility is one of the largest logistics services providers to businesses and governments. The company has more than 37,000 employees in over 550 offices and 120 countries. In addition to Global Integrated Logistics, Agility consists of Defense & Government Services, which provides logistics services to governments, relief agencies and international institutions worldwide; and Agility Infrastructure, which focuses on infrastructure support in areas of industrial real estate, customs optimization and airline services primarily in the Middle East, Africa and South Asia.
Not all has been well for Agility in the past year. In November, several Kuwaiti newspapers reported that Public Warehousing Co., the forerunner of Agility, had been charged by the U.S. government for overbilling the military. Agility is in negotiations with the U.S. government to clear the charges, which remain allegations at this point.
Meanwhile, the company has not allowed this case to dampen its commercial ambitions. It has pursued a merger with Qatar's Gulf Warehousing Co., which was first announced in January 2009.
In May 2009, Agility acquired its 23-year partner in Mexico, Trafinsa S.A. de C.V., and U.S. affiliate Trafinsa International. Based in Mexico City, Trafinsa operates offices in Guadalajara, Monterrey, and Laredo, Texas. The company provides cargo management, air and export handling, deconsolidation and documentation services to various industries, including cement, food, brewery and automotive.
Agility recently appointed Thomas Peikert global senior vice president for sea freight. Peikert has been with Agility since 1990, most recently serving as senior vice president of business development for the Asia-Pacific region, based in Hong Kong. He will focus on driving trade lane volume growth and will be based in Baar, Switzerland, from the third quarter of 2010.
'We're strong financially, so we can afford to invest and will continue to develop capabilities around the world,' Gargaro said. 'To come up with a plan or an idea, and have the company make an effort to develop it, that's a nice feeling.' ' Chris Gillis