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MANAGING CHANGE

AN OCEAN CARRIER'S PERSPECTIVE

Chuck Raymond
Group Vice President, Operations
Sea-Land Service, Inc.

AMERICAN ASSOCIATION OF PORTS AUTHORITY
ANCHORAGE, ALASKA

Good afternoon, ladies and gentlemen. It's my pleasure to be here today. I'd like to thank the association for giving me the opportunity to share some thoughts with you.

Up here in Anchorage, it's easy to get swept away by the relatively untouched and unstructured beauty of the country. That's why I was surprised when I heard that some residents think Anchorage is becoming too citified, not like it used to be, not like Alaska is supposed to be.

Take my word for it -- I live in New Jersey...I know New Jersey...this is not New Jersey.

It's clear that no matter where we live, even up here in God's country, we cannot escape some change. It's something we all have to learn to live with.

Like many of you here today, I'm a "veteran" of the transportation wars. I joined the shipping industry some 27 years ago. 0ver that span, I've learned that one of the few things you can count on in this business is constant change. And, you have to learn how to manage it.

I'm going to focus my remarks today on some of the critical changes currently taking place in the industry -- change in the fundamentals of our marketplace, change in how we manage our business, and the changes this industry must achieve to ensure that all ocean carriers can compete on fair terms.

When I joined Sea-Land in 1965, ocean shipping was far less complex than it is today. We had just introduced the first U.S. to foreign container service with a call in the Dominican Republic. 0ur first regular sailings to Europe were still a year away.

Competition on the seas was more predictable...there were fewer players...and the U.S. carriers had much more of an edge.

Shippers had fewer options than they have today.

Back then, carriers tended to take an introspective approach to running their businesses. We measured our success against our own benchmarks.

0ur ships were the core of the business. What we cared about most was moving as much freight as we could. Volume was king!

Terms like "market-driven" and "customer-focused" were not yet part of the shipping lexicon.

There was no need to be concerned with margin and yield -- we ruled the waves!

That approach may have worked for us in the 1960s and into the '70s. Since then, however, the needs of shippers have changed dramatically. And, with hard-driving global competitors challenging us, Sea-Land and other U.S.-flag carriers have had to change to meet a new set of shipper requirements.

Today our customers are using the entire globe to market their products and run their operations. Sourcing on one continent, manufacturing on another, and selling products all over the world is no longer a phenomenon -- it's the way business is done.

These customers depend upon highly efficient, just-in-time operations in which materials must move quickly from continent to continent.

In this environment, shippers need a lot more from a carrier than slots on a vessel and an estimated time of arrival. They need -- and are insisting upon -- highly reliable, fast service, not only port to port but door to door. They need a company that can work with them on all of the elements in a global transportation and distribution chain.

The vessels themselves are still a vital link in this chain.

But carriers need much more than reliable ships.

They must know how to utilize efficient port terminals.

They must be ready to provide consolidation and warehousing services.

They must understand other modes of transportation and how to put them to best use for their customers.

They must know how to develop information systems that gives customers the information they need, when they need it, in the right format.

Carriers who can put that whole package together are winning today and will win in the mid-1990s and beyond.

Certainly a vital part of that package is the ports themselves. That's the focal point of our business. We can't "win" unless our port infrastructure provides us with flexibility, support and a stream of innovation.

Here in North America, I think we can take pride in the seaports our country has to offer. The people who manage work at our port facilities here in Alaska and along the coasts of the lower 48 have made the most of a free-enterprise system that sparks ideas and encourages healthy competition.

Tacoma battles with Seattle, Houston with New 0rleans, Charleston with Jacksonville, Long Beach with Los Angeles, Portsmouth with Baltimore, and so on. That competition -- based on service offerings and technology -- brings continuous improvement in port performance. It's made many of the U.S. ports among the most efficient in the world. Shippers and carriers are fortunate to have so many options.

For the same reason -- a competitive environment based on free enterprise -- the United States also has the best rail freight, intermodal and air freight systems in the world.

0n the other hand, our infrastructure is most in need of work in those areas where politics plays a major role -- city streets, airport construction and regional highway development are examples.

But putting it all together, our country has a transportation infrastructure that gives us an important competitive advantage over other industrialized nations.

At Sea-Land we view port operations as the heart and soul of our business. We believe that our network of terminals gives us a distinct edge on our competition. It's an advantage we work hard to maintain.

Around the world, we're working with port authorities, local governments and private companies to introduce new equipment and technology that increase productivity and efficiency.

If the next part of my talk sounds like a Sea-Land commercial, I ask for your understanding. The port projects I know best are the ones in which my company is playing a role.

There are three I'd like to touch on today, including one that was recently completed right here in Alaska.

Not long ago, Dutch Harbor, out in the Aleutian chain, was a remote village with limited interaction with the rest of the world. That was before seafood companies discovered the considerable bounty swimming in the waters off the village.

As those companies descended on Dutch, port officials saw an opportunity to become a major player in international trade.

Sea-Land joined with the city of Unalaska/Dutch Harbor and the Petro Marine Company to build a deepwater port that began operating last January.

We operate a 30-ton crane from 730 feet of dock space. 0ur direct call to Yokohama, Japan, has helped Dutch Harbor strengthen its position as the number one seafood exporter among all u.s. ports.

Another example of unique cooperation is taking place in the bustling market of Hong Kong. Hong Kong and Singapore run the two busiest ports in the world in terms of container throughput -- each handling more than 6 million containers per year.

Hong Hong's central location in Asia makes it an ideal place to consolidate cargoes from around the continent. Many U.S. companies source materials from several Asian markets and consolidate those cargoes in Hong Kong for shipment to America.

And, importantly, it serves as the window to the world for the more than 1 billion people who live in the Peoples Republic of China.

As Hong Kong has grown into a hub for consolidators, the need for warehouse space has increased dramatically...at a port where space is already in short supply.

Sea-Land operates the largest warehouse in the world at its Kwai Chung terminal in Hong Kong. We recently joined forces with our partners -two Asian development companies -- to produce a unique solution to the growing need for more space. We are expanding our warehouse -- which is already listed in the Guinness Book of World Records -- to provide for additional storage.

The 3-story addition means that this facility will be almost 50 percent bigger than the pentagon, which is the largest office building in the world. It will offer almost 10 million square feet of floor space...all on just 43 acres of land.

I describe this project not to dazzle you with numbers but to offer another unusual approach to managing port operations.

An equally ambitious development is taking shape half way around the world at the port of Rotterdam. As you may know, a new terminal is scheduled to open there in January 1993. The Delta Terminal -- as it is known -- will be by far the most advanced port facility in the world.

New technology will so dominate the operation that some containers will pass through the port without being touched by human hands.

Each container movement in the yard will be planned and controlled by an information system developed especially for this terminal. Before any loading or unloading begins, the computer will determine the order in which containers are to be handled.

The system will send instructions to a fleet of 50 unmanned vehicles. These units -- called automated guide vehicles, or AGVs -- will be used to move containers around the port.

A reference grid is built into the paving of the dock. It will enable each vehicle to check its position in relation to traffic lanes and other vehicles.<

The same computer will control 26 automated stacking cranes that will load and unload the guided vehicles. The system will send a command to the crane, telling where to find a container and where to place it.

The computer system, the unmanned vehicles and the stacking cranes tell just part of this spectacular story of automation. In all, more than 70 pieces of equipment will be controlled by computer.

The delta terminal is a joint venture between Sea-Land and Europe Combined Terminals. Sea-Land and ECT have worked together at our existing Rotterdam facility for more than 25 years. What we will unveil in three months is the culmination of intense study and planning during the course of our relationship.

When carriers have an infrastructure in place, they have taken a first step toward competing in today's marketplace. The next step is to create an organization that can make that infrastructure pay off in full.

As I said earlier, carriers have to realize that the marketplace has changed forever.

Shippers are going global. They have more and more carriers to choose from. They know that issues such as time-to-market and inventory management have a direct bearing on their bottom line.

To meet these changing requirements, carriers have had to rethink the way they do business. They have to be able to consistently deliver speed, reliability and quality in every move they make.

At Sea-Land we saw the market changing and we knew we had to change too.

We were the quintessential hierarchy. 0ur lines of sight were drawn up and down the lines of our operating units.

We reviewed every area of the company and decided we had to reorganize. We flattened out that hierarchy -- going from 14 levels to six.

We moved more decision-making power into the hands of the workers who are closest to our customers.

0nce we had the new organization in place, we took a fresh look at how we should run the business. After much self-analysis, we determined that we needed a uniform approach to the way we function across the company.

In 1988 we launched a quality management program that spells out in great detail the kind of company Sea-Land wants to be. All 9,500 employees worldwide have received training in how our quality process is designed to work.

Today every Sea-Land employee is a member of at least one quality team. These teams meet regularly to figure out ways to be more productive and reduce costs.

We've infused the company with a new focus on quality in everything we do.

With everyone aiming at the same targets, we have been able to generate positive results in a short period of time. I'd like to give you one example. I'm an operations man -- this one is close to my heart.

In 1988 we determined that the diesel generators on our 12 Atlantic Class vessels had to be replaced.

There were 36 engines on the 12 vessels.

The old approach would be to take them out of service for repair in dry dock. That would mean weeks out of service...serious problems for our customers...and a setback to our position in the Atlantic trade.

Using the quality process as our guide, we decided to try something that had never been done before. We would make the repairs while the ships were in port and at sea, on their normal sailing schedules.

The engines were made in Denmark and loaded on our ships at ports in Europe.

With generators providing temporary power, one old engine was removed during each crossing by a repair crew housed in specially made quarters under the wheelhouse.

A new engine was installed when the ship reached the U.S. port.

It was a massive project with no room for the errors or overruns you might expect in a project of this complexity.

It required cooperation among many Sea-Land departments and outside contractors.

And it all had to happen during winter in the North Atlantic...at a time when we were supporting desert storm.

This around-the-clock operation required thousands of man hours. More than one thousand working parts were redesigned and repaired.

When the last ship sailed from the U.S. port, we came in ahead of schedule and under budget.

Several parties teamed up to achieve an industry first. We were able to upgrade our ships, meet our customers' needs, and realize a large cost savings at the same time.

As that example indicates, the quality process has helped us learn how we can achieve unusual progress by working together toward a common goal.

It's one thing to produce quality work...it's quite another to know how much your customers value the various work you provide for them.

After a few years of learning the principles of quality and applying them in our daily routines, we were ready to take the next step.<

We have defined our business around what we call our five basic transportation services. They are -- vessel schedule reliability, transit time, equipment availability, customer service and documentation.

0ur quality teams are hard at work on all of these issues. We've set specific standards in each service area that we expect to achieve in a short time.

But the process doesn't stop there.

We've created a system of scorecards that we use to measure our progress. Each month, employees at 43 locations monitor productivity in vital port functions -- such as lifts per hour and yard turn time -- and log performance into the computer.

Those scores are combined into six regional scorecards that are published in every issue of Sea-Land's magazine.

It's an effective way to keep track of progress and to compare one location's performance to another on a worldwide basis.

As this route shows, we have more than 100 locations to monitor worldwide.

In a few years, we have turned the company inside-out. Today we have a lean organization, committed to using our quality process to best serve the changing needs of our customers.

There's another element of change that I would briefly like to touch upon -- the ramifications can have a profound impact on all of us here today. The United States needs a new maritime policy to ensure the future viability of the U.S.-flag fleet.

Transportation secretary Andrew Card has said that one his top priorities is to make that change happen. An administration task force has hammered out a Maritime Reform Act that was sent to Congress in June.

Much of the Act is based on changes proposed by Sea-Land and American President Lines. Sea-Land and APL control more than 85 percent of the container cargo capacity still under U.S.-flag.

The centerpiece of the administration's platform is the contingency reserve program, made up of privately owned ships deemed useful by the department of defense.

The program would include up to 74 ships, whose operators would receive an annual payment for each ship in the fleet.

The program recognizes that U.S.-flag ships are vital to national defense. It would insure that a U.S.-crewed fleet of ships would always be available in an emergency.

The act also would allow U.S.-flag carriers to acquire ships built in foreign yards by using monies from a tax-deferred account called the Capital Construction Fund.

It would also repeal a penalty duty of 50 percent of the value of repair work done on U.S.-flag ships on overseas yards.

There are other elements but those are among the most critical.

Opponents to reform believe that a strong merchant marine is no longer needed as part of our national defense. They point out that the world is a safer, saner place now that Cold War has ended.

They say that if we need a ready reserve, we can enlist the services of foreign-flag carriers.

It's not that easy. The world may be safer today, but as we learned last year in the Persian Gulf, anything can happen. And there is always the possibility that we engage in an unpopular war.

The legislative package spearheaded by Andrew Card has been warmly received on Capitol Hill. It has won broad bipartisan support.

But time is running out for action during this session of Congress. Lawmakers face a crowded calendar of legislation as they prepare to adjourn for the winter recess.

We continue to urge all parties involved -- from congress to the department of defense -- to make this bill law as soon as time permits.

Without substantial change, the changing economies will force Sea-Land, APL and other U.S.-flag carriers to reregister our ships under foreign flags. That's a move we would rather not make.

I've talked a great deal about change today. And I'd like to close by coming back to one of my favorite subjects.

In many ways, our ports are the backbone of America's transportation infrastructure. Looking ahead, they will continue to play a huge role, not only in the U.S. economy but in the world economy as well.

In the last decade, the changes we have made in running our ports have been nothing short of remarkable.

I would urge all of us who have the privilege to work in this business to look for ways to keep us on the leading edge of innovation and efficiency. Your efforts will go a long way toward making the United States a stronger player in this fast-changing global marketplace.

And, on behalf of Sea-Land I would like to thank the AAPA and its membership for contributing so importantly to building and maintaining our competitive advantage.


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