The Global Supply Chain

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The Global Supply Chain
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Agenda

• Global Supply Chain is a 2 trillion business,
  300 Billion is outsourced
  
• Traditional Supply Chain versus Global Supply
  Chain
  
• Roles -Transportation companies and financial
  institutions
  
• Limitations and constraints of the Global Supply
  Chain
  
• Financing the Global Supply Chain

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The Traditional Supply Chain
Manufacturing
Distribution
Retail
Freight Movement to regional DC
Supplier

Retail Store
Distribution Center
Supplier
Return to store
Customer
Distribution Center
Back to DC
Keeps product
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The Global Supply Chain includes all three
goods
information
funds
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China Overview
Map - Government Administration
Heilongjiang

Jiling
Xinjiang
Liaoning
Beijing
Inner Mongolia
Tianjin
Hebei
Shanxi
Qinghai
Shandong
Gansu
Tibet
Ningxia
Jiangsu
Henan
Anhui
Shanghai
Sichuan
Hubei
Chongqing
Zhejiang
Hunan
Jiangxi
Guizhou
Fujian
Provinces 27 Independent Cities 4 Special Ad
ministration Region 2 All provinces, independen
t cities and SAR are under direct administration
of the State Council
Taiwan
Yunnan
Guangxi
Guangdong
Hongkong (SAR)
Macau (SAR)
Hainan
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China Overview
Economic Development Zones
Heilongjiang
Jiling

• Bohai Bay Area (BBA)
• Beijing
• Tianjin
• Shijiazhuang
• Qingdao
• Dalian
• Xian
• Jinan

Liaoning
Hebei
Xinjiang
Inner Mongolia
Beijing
Tianjin
Bohai Bay
Shanxi
Ningxia
Shandong
Qinghai
Henan
Jiangsu
Gansu
Tibet
Shanghai
Anhui
Hubei
Sichuan

• Yangtsze River Delta (YRD)
• Shanghai
• Ningbo
• Suzhou
• Wuxi
• Kunshan
• Nanjing
• Hangzhou

Zhejiang
Chongqing
Jiangxi
Yangtsze River
Hunan
Fujian
Guizhou
Pearl River
Taiwan
Yunnan
Guangdong
Guangxi

• Pearl River Delta (PRD)
• Guangzhou - Yantian
• Dongguan - Zhuhai
• Taiping - Hongkong
• Shenzheng - Macau

Hongkong (SAR)
Macau (SAR)
Hainan
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Each Phase Presents Challenges/Opportunities

• Origin - Managing Vendors
• Middle - Receiving and Transportation of Goods
• End Getting product to the customer getting
  paid for your product

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Managing Vendors

• Do you have the resources to do it yourself?
• Incorporate a vendor management partner to be
  your eyes and ears abroad. The vendor management
  partner will
  
• Manage the entire PO process for you
• Have employees at all origin locations to
  receive goods
  
• Hold vendors accountable for delivery of
  marketable conforming goods
  
• Consolidates orders to reduce transportation
  costs
  
• Knows and manages all compliance and regulatory
  issues
  

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Receiving and Transportation of Goods

• Goal cheapest reliable delivery with acceptable
  risks and guarantees
  
• What terms do you buy under
• Vendor will mark up transportation in FCOGS
• When do you take possession duties and taxes
• What mode do you export with - air, ocean,
  direct
  
• Capacity issues
• Port issues - Export and Import
• Customs, Regulatory and Security issues
• Once goods hit the US, how do you get them to the
  end customer
  
• Rail, TL, LTL, Small package, Direct

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Capacity Issues

• Not enough space on vessels/planes
• Export ports cant meet todays volumes
• Aggressive port build up wont keep up with
  demand
  
• Chinas desire to move production West
  infrastructure limitations
  

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China Overview Economic Development Government
Investment Directions

• Develop the Great West
• Building Infrastructures, e.g. high
• ways, rail, river ports, connecting
• to the coast
• Develop airports at gateway
• cities Chongqing, Chengdu, Xian
• Provide attractive incentives to
• encourage low end and labor
• intensive products to move to the
• west for production.

Xian
Chongqing
Chengdu
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Port Issues

• Vessels cant be loaded (origin) or unloaded
  (destination) in a timely fashion
  
• Lack of skilled dock workers
• Labor slowdowns/strikes
• Security checks and delays
• Insufficient land equipment to move containers to
  distribution points
  
• Imbalance of East West volume creating
  equipment flow unbalance (reverse distribution
  opportunities)
  

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Guangdong Ports
About 2.2 mil. TEUs in 2003
Guangzhou Port (???)
Shantou Port (???)

• Reached 10.65 mil. TEUs in the whole Shenzhen in
  2003 (40 growth)
  
• 4 more berths will be commissioning in 2004

Nansha Port (???)
Shenzhen Ports (???) Yantian Shekou Chiwan
Zhuhai Port (???)
Hong Kong Ports (????)

• About 20 mil. TEUs in 2003

ZhanJiang Port (???)

• GuangDong Province planned to focus on the
  development of the five ports of Guangdong,
  including Shenzhen, Guangzhou, Shantou, Zhuhai
  ZhanJiang to be the hubs for the Guangdong.

• Allow to berth 300,000-ton vessel in 2005

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Guangdong Transportation Infrastructure

• HK-Zhuhai-Macau Bridge
• The Y-shaped bridge connecting HK Lantau Island,
  Zhuhai and Macau can shorten the traveling time
  between HK and Zhuhai / Macau to less than 30
  minutes.
• It is anticipated that more factories will move
  west, to take advantage of the lower costs in
  the western part of the Pearl River Delta, the
  bridge will help HK capture cargo from this
  area.
• Shenzhen western corridor
• The corridor connecting Shenzhen Shekou and HK
  Yuen Long will be the additional border gateway
  between HK Shenzhen, and will alleviate the
  border congestion.
• Highway in western Guangdong
• The highway connecting Zhuhai (HK-Zhuhai-Macau
  bridge) to Zhanjiang (??) will be completed in
  2006.
  
• Hong Kong will become the major export port for
  western Guangdong.

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Hong Kong, Shenzhen Nansha Ports
Guangzhou Port (???)

• Capacity (2005) 7 mil. TEUs (2010) 10.3 mil.
  TEUs
  
• Handled 5.3 mil. TEUs in 2003

Nansha Port (???)

• At Sep 2004, there will be 4-50,000 tons berth
  commission.
  
• Expected capacity 1 mil. TEUs in Phase I

• Shekou capacity 1.8 mil. TEUs, handled 1.5 mil.
  TEUs in 2003
  
• Chiwan capacity 1.4 mil. TEUs, handled 1.6 mil.
  TEUs in 2003

Yantian Port (???)
Da Chan Port (???)
Shekou Port (???), Chiwan Port (???)

• Total investment HK10 billion
• Total Capacity 10 mil. TEUs
• Phase I 3 berths, 2-2.5 mil. TEUs, 2008-2010
  completion

HK Kwai Chung Ports (CT1-9) (???????? 1-9 ?)
Long term planning

• Capacity (2003) 12.4 mil. TEUs (2005) 15 mil.
  TEUs
  
• Handled 12 mil. TEUs in 2003
• HK Total 20 mil. TEUs in 2003

CT10 HK Lantau Island (Plan) (???)

• Est. investment HK8 billion
• Est. capacity 4 mil. TEUs, 4 berths

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Guangdong Airport Alliances
MeiZhou Airport (????)
Guangzhou Baiyun Airport (??????)
Shantou Airport (????)
Shenzhen Airport (????)

• HKIA had 27.3 mil. Passengers and handled 2.64
  mil. Tonnes cargoes in 2003.

Hong Kong Intl Airport (??????)
ZhanJiang Airport (????)

• Guangdong Province Government has centralized the
  management of Guangzhou Baiyun Airport, MeiZhou
  Airport, Shantou Airport and ZhanJiang Airport
  that target increasing the cargo source coverage
  of Guangzhou Baiyun Airport, supported by the
  domestic flights of Meizhou, Shantou
  Zhanjiang.
• Guangzhou Baiyun will start operations in mid of
  2004.
  
• Capacity per annum of Baiyun Airport
• (Passenger) 27 mil.(2004) ? 52 mil. (2020)
• (Cargo) 1 mil. Tons (2004) ? 2 mil. Tons (2020)

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HK-Zhuhai-Macau Bridge, Shenzhen western corridor

• The new bridge will shorten the traveling time
  between Zhuhai or Macau and HK to less than 30
  minutes.
  
• Total length 30km
• Construction period 5-7 years
• Flow (Passenger) 65 mil. P.a. As at 2020
• (Vehicle) 2.88 mil. P.a. As at 2020

Shenzhen western port (??????)
Shekou (??)

• Shenzhen Western Corridor connecting Shekou and
  Yuen Long
  
• Vehicle flow 40,000 vehicles per day
• Total length 3 km

Yuen Long
Long term planning
Zhuhai (??)

• The highway between Zhuhai and ZhanJiang will be
  commissioning in 2006
  
• Total length 46km

CT10 HK Lantau Island (???)
To ZhanJiang (??)
Macau (??)
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Improving the Balance Sheet

• The largest imports have already completed the
  shift and control/effectively manage their own
  supply chains
  
• These companies have realized significant cost
  savings and improved their income statements by
  managing their own supply chains
  
• More COOs and Logistic Managers are reporting to
  the CFO
  

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Financing the Transaction Global issues

• Letters of Credit
• Syndicated Revolvers
• ABL lines
• Where is the inventory
• Do you exclude inventory from the borrowing
  base?
  
• Ramifications of excluded inventory
• Can you monitor inventory levels
• In case of default, will you be able to seize
  the inventory

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Other Financial events in the Global Supply Chain

• Check 21
• Secured movements, cash, gold, securities, etc

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Summary

• Global Supply Chain is not coming, it has already
  arrived
  
• Those who adapt quickest will have a distinct
  competitive advantage
  
• Financing options for the Global Supply Chain
  will increase
  
• Transportation companies are partners not
  competitors
  
• You will see more mergers and partnerships
  between companies expanding beyond their
  traditional roles as companies expand their
  portfolios of products and services to better
  meet the needs of The Global Supply Chain

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THANK YOU

• Jeff Battaglia UPS Supply Chain Solutions
  678-746-6351
  
• Jim Fortsch UPS Capital 860-241-2544