The Intermodal sector faced many of the same challenges as other segments of the transportation industry during the recession and suffered some decreases in business in 2009. Toby Kolstad, President of Rail Theory Forecasts in Portland, Oregon attributed the volume declines to two factors. “About 70 percent of the downturn in business is attributed to the drop in imports and the other 30 percent is due to the drop in domestic sales. I don’t see the traffic picking up substantially in the future because I think retail sales of goods will continue to lag. There is just too much unemployment, debt and an overall feeling of loss of wealth.” He forecasts that intermodal volumes will return to pre-recession levels by 2014.

Against this backdrop of discouraging news, the rails are not standing still. In fact, there has been a flurry of developments over the past several months that demonstrate that the industry is still vibrant and poised for growth.

Major Truckers and IMC’s restructure their Partnerships with the Rails

J.B. Hunt, once America’s largest truckload carriers now generates significantly more business from its intermodal business. For the past 20 years, Hunt has had an alliance with BNSF Railway, the largest intermodal railway. With the largest fleet of domestic 53-foot intermodal containers, estimated at 41,000 boxes, Hunt has been achieving consistent growth in its western USA intermodal business. Late last year it signed an agreement with Norfolk Southern Railway to grow its eastern USA business.

Schneider National, one of its major competitors, has partnered with CSX, NS’s leading competitor in the east. Schneider is focusing on the Chicago-Florida, Chicago-Northeast and St. Louis-Northeast routes.

UP last year renegotiated a long-term space and pricing contract with Pacer International, a large freight management company that allowed the railroad to directly take over more domestic business. Before that it lured Hub Group, another large IMC, to shift much of its western-U.S. traffic onto UP from rival BNSF Railway.

Expanded Rail Corridors to Take Advantage of the Widening of the Panama Canal

The western rails have served as the land bridge for Panama Canal traffic. CSX and Norfolk Southern are positioning themselves to capitalize on what they hope will be a shift of customers to east coast ports as the Panama Canal is widened by 2015. This is resulting in a set of upgrades and intermodal expansion to facilitate the movement of containers through east coast ports. This eastern development is expected to pave the way for double-stack trains along these corridors.

The Heartland Corridor is being implemented to increase double-stack intermodal traffic from the port of Virginia, the deepest east coast port, into the Midwest, primarily Columbus and Chicago. Several railroads have plans to invest in intermodal facilities in Memphis to facilitate traffic along the Norfolk Southern Crescent Corridor, a high-speed route between the South and Northeast which boasts the ability to take 880,000 long-haul trucks off the busy commercial corridor annually.

CSX Corp. recently received $98 million in federal stimulus funds toward its goal of increasing the use of double-stack trains to move freight from mid-Atlantic ports to Midwestern markets. The $842 million public-private partnership, known as National Gateway, involves upgrading existing track, modifying bridges and raising tunnel clearances along three major CSX routes -- the I-95 corridor between North Carolina and Baltimore, I-70/I-76 between Washington and northwest Ohio via Pittsburgh, and the company's Carolina Corridor between Wilmington, N.C., and Charlotte, N.C. -- to accommodate the taller freight cars. One such train can carry the load of more than 280 trucks. In Virginia, the project would take an estimated 1 million trucks off I-81 in its first 10 years -- far less than Norfolk Sothern’s Crescent Corridor plan.

Prince Rupert offers Shortest Transit Times from the Far East

Much has been written about the Port of Prince Rupert on the west coast of British Columbia. The port that in conjunction with CN Rail links the Far East to the heartland of the United States remains a key component of NASCO (North American Super Corridor). Container volumes are projected to grow from 500,000 TEU’s to 2 million per annum.

The Move to Jumbo Containers

CSX Transportation in the eastern United States and Union Pacific Railroad in the West will soon be jointly marketing a domestic intermodal service in jumbo-sized containers. Dubbed UMAX, the service will give customers single-bill interline routing on more than 600 traffic lanes, and the railroads are backing it up with 20,000 of the big 53-foot boxes. The carriers said UMAX begins operating March 29, with door-to-door service that will be competitive with trucks by combining short-haul trucking with long-distance rail.

The Warren Buffet Factor

Warren Buffet has a reputation as a benevolent investor who allows the leadership teams in his companies to run their businesses, unless they falter. Some experts believe that he will maintain this “hands off” approach while others foresee him trying to move BNSF, his largest investment ever, in some new directions. Specifically, there are those who believe that by removing the focus on quarterly returns, this may allow the company to change its large network in ways that produce faster growth (e.g. take more freight off the road, sign contracts with ocean carriers). He may also look at a merger with Norfolk Southern in which he already has a stake and invest in dual power locomotive cars that are not currently used in the United States. Certainly if fuel costs begin to rise significantly over time, the BNSF would be uniquely positioned to divert business from road to rail.

Don’t Forget About Mexico

The Kansas City Southern Railway is focusing on the Kansas City to Mexico corridor and the Rosenberg (Houston) to Mexico City corridor. New intermodal terminals are planned for Toluca, Mexico and Rosenberg, Texas. Mexico is also looking for significant container growth at the ports of Lazaro Cardenas and Manzanillo.

Transloading

This continues to be an option in certain situations where it becomes economically viable to utilize the domestic intermodal rail network and take advantage of opportunities to pool freight to specific destinations.

If they build It, will they come?

Taken collectively, these activities paint a picture of a mature industry that is in the process of revitalization. One would think that these new offerings would be warmly received by shippers. However, customers of Canada largest railways have issued a damning review of the quality of service they have received in recent years. The findings are part of the federal government's ongoing Rail Freight Service Review process which could potentially lead to greater regulation of the rail industry in Canada after the recommendations of the commission are given to Parliament in the fall.

Some of the initial findings contained in a survey of 269 shippers across the country chastise Canadian National Railway Co. and Canadian Pacific Railway Ltd. for unsatisfactory service. Only about 17% of those surveyed said they have a high level of satisfaction in the service they have received from either CN or CP. Typically, such customer satisfaction surveys elicit a response in the 50% to 70% range, said Andrew Ennis, who conducted the survey by NRG Research Group on behalf of the federal government. Moreover, 62% of those surveyed said they had suffered significant financial losses sometimes in the millions, as a result, Mr. Ennis added. Terminal operators, port authorities and shipping lines have also reported concerns about the level of service they have received from the rails.

Most shippers in North America are captive to one or two railways in their market areas so there are not a lot of options. While shippers do not want to see the government take over the railways again or heavily regulate them, they would like some measures implemented to balance the playing field, said Bob Ballantyne, President of the Canadian Industrial Transportation Association, the main shipper lobby group. Shippers would like to see some sort of financial penalties made available if rail cars show up late, like the demurrage fees the railways charge shippers. With all the exciting changes taking place in the intermodal transportation arena, the railways would be advised to upgrade their customer service to reap the full rewards from their new intermodal products and services.

Last year was a disaster for the LTL segment of the freight industry. As business volumes contracted and YRC, one of the industry giants, teetered on the brink of bankruptcy, many LTL carriers sacrificed their pricing discipline in the hopes of gaining market share and driving YRC off the LTL road. Rather than reducing capacity to meet demand, a number of carriers used price as a weapon to increase volumes. Ultimately this strategy failed with the LTL sector posting the largest year/year decline in rate levels.

The North American economy is improving in 2010 but very slowly. YRC, with its debt for equity swap, has a new lease on life. This has driven many LTL carriers back to their board rooms in an effort to revise their strategies and rebuild their tattered financial statements. The broad outlines of these new strategies are now starting to take shape.

Douglas W. Stotlar, president and CEO of LTL carrier Con-way described his company‘s strategy as follows. “Our focus is on driving efficiencies into the network, building volume and improving yield.” This is likely a theme to be repeated by many LTL carriers this year. Here is what Con-way and some other leading LTL carriers are doing.

Matching Supply to the Reduced Demand

Con-way Freight is approaching the task of building network efficiency with a broad re-engineering of its network, slicing transit times between 460 destinations by reducing handling, and, in turn, building the density on its shortest, most direct routes that truckers say is critical to profit.

Faster Service to Expanded Service Areas, including Canada

Cross-border freight between Canada and the United States has long been one of the most profitable segments of the LTL industry. Holland, a YRC regional carrier, announced the availability of its enhanced next-day service reach between Toronto, Canada, and seven markets in the Midwest and reduced transit times on an additional five lanes in and out of Toronto for enhanced two-day service.

Holland is claiming that these service improvements give them the largest next-day footprint between Toronto and the Midwest, including new next-day service with Chicago, Joliet and Wheeling, Ill., Cincinnati; Huntington, W.Va., and Indianapolis. With its expanded next-day service footprint, the company can also deliver enhanced two-day service to Joplin, Springfield and Kansas City, Mo., Memphis, Tenn., and Worthington, Minn., shaving a day off transit times to these markets.

UPS Freight is speeding freight across the Canadian border by stretching its two-day delivery network from Toronto and Montreal as far south as St. Louis, Mo., and Atlanta. The new two-day transit times include Montreal to Milwaukee, Rockford, Ill., and St. Louis. Also, Toronto now provides two-day service to key markets in Georgia and North and South Carolina to include Atlanta, Augusta, Charlotte, Charleston and Savannah.

Pricing Precision

Across the LTL industry, carriers are retreating from rate discounting that slashed profits last year, signalling a truce, at least, in the industry’s rate wars as they try to build a more profitable business. For Con-way, that means pruning unprofitable business from its books, customer by customer.

LTL carriers are also seeking general rate increases (GRI’s) on their non-contracted business. Con-way and FedEx have both signalled that they are seeking rate increases of 5.9 percent while Old Dominion is asking for 4.4 percent. Con-way has indicated that their GRI, implemented on Jan. 4 has held “pretty well.” The GRI applies to about 30 percent of Con-way Freight’s customer base. “We’ve seen volume maintained at 2009 levels for that segment, and we have not been negotiating price with that segment of customer,” stated John Labrie, President of Con-way Freight. For the other 70 percent, “We’re going through the book of business account by account.”

Bolstering Sales Teams

Con-way Freight is starting 2010 by strengthening its sales organization by appointing five sales managers — including three recruited from rival YRC Worldwide — to lead new regions in the South, Mid-Atlantic, and Mid¬west and Great Plains states. UPS Freight named Allan Robison, former president of Canadian carrier YRC Reimer, Vice President of Sales in Canada.

Improving Asset Utilization

One of the unique elements of LTL operations is the requirement to have geographically dispersed freight terminals. Rather than just use these facilities for local cross-dock and distribution, LTL carriers in 2010 are seeking to make better use of their assets. Carriers such as Midwest Motor Express and New England Motor Freight are making their terminals into bonded warehouses and receiving container loads of freight from overseas which they can strip and load into their LTL peddle runs.

Evolution of 3PL Services

Most LTL carriers have seen the 3PL industry become the point of contact with many of their clients. This has caused a number of companies to expand their skill sets, service portfolios and information processing capabilities. These skills and tools are allowing them to provide a more holistic logistics plan for their customers. Some LTL carriers have begun to gain recognition for their enhanced IT capabilities. Con-way Freight, YRC, Old Dominion and Pitt Ohio Express all made the 2009 Information Week 500 list.

Going Global

Con-way has been one of the leaders forming alliances with APL Logistics and TNT Express. The APL partnership focuses on inbound ocean freight from Asia to the United States while the TNT alliance is geared to streamlining combined air and ground logistics between the European Union and the U.S.

Clearly the LTL industry is going back to the basics in an effort to improve profits. Cost decreases, rate increases, improving the sales force, transit time improvements and new service offerings are some of the tools being employed to improve financial performance in 2010.

Freight costs can be as much as 3 to 5 percent or more of gross revenues in many companies. This can represent tens or hundreds of millions of dollars in expenses on an annual basis. During the recession, the Transportation Directors in many firms were tasked with some new realities. Customers cut back on order sizes. Inventory reduction became a top priority. Staff cuts were demanded. The challenge faced by many shippers was how to reign in freight costs and maintain customer service with fewer employees while shrinking inventories. Some companies learned a number of important lessons during the recession.

Bring Freight Spend Under Management

You can only manage what you measure. To effectively control freight costs, it is essential to gain visibility into the key cost elements of freight. This includes being able to capture data on line haul costs, fuel costs and accessorial charges. It encompasses data on shipment sizes, modes, carriers, by day, by postal code/zip code. A recent Aberdeen Group study reported that every dollar brought under management results in a 5 to 25 percent savings. Visibility is a key to cost savings.

Focus on those KPI’s that mean the Most to Your Organization

In a recent Hackett Group study it was reported that of all the jobs lost during the recession, less than half will be replaced. This suggests that there will be fewer people available to monitor and act on a company’s freight spend data for an extended period of time. This requires companies to focus on those key KPI’s that mean the most to the organization. While many transportation organizations monitor the same data elements (e.g. on-time service, OS and D’s), there are often some specific variables that are most relevant to that specific industry or company. This may be a cost per ton, freight costs as a percent of revenue, freight spend by mode or inventory turns. With fewer resources, it is critical to focus on the key transportation related cost drivers that have the most impact on profits and service.

Revisit Current Benchmarks

Order fulfillment levels and transit times evolve over time. These need to be constantly re-evaluated and re-assessed. Cost savings can be derived from shipment consolidations and/or from modal shifts. With good quality data, shippers can revisit established benchmarks in consultation with customers to see if ordering patterns and/or shipping processes or modal changes can drive freight spend savings.

Don’t Forget About Inbound Freight

Inbound freight to some companies is viewed as an indirect or landed cost. It is managed in the Purchasing silo and sometimes does not command the same scrutiny as do outbound freight costs. However inbound freight costs can represent a large component of a company’s total freight costs. These expenditures have the same cost elements as outbound freight and can represent an important opportunity for synergy (e.g. creation of round trip or continuous moves) and leverage (e.g. integrate and strategically source at same time as outbound freight services are sourced).

Expand Carrier Base

As highlighted in last week’s blog, many shippers limit their opportunities for freight cost saving by approaching too small a base of carriers. Certainly in this day of staff cuts, it is challenging to find the time to perform one’s basic job functions while having the time to research the market. The fact is that this can be a very fruitful path to securing cost savings.

Upgrade Freight Procurement Management Tools

Since many transportation departments now have fewer resources, this makes it necessary to make the procurement and management of freight services less labour intensive. This means less dependence on manually created documents and spreadsheets while increasing the use of both freight procurement and freight spend management tools. While it may be difficult to justify the cost of purchasing a spend management tool specifically for freight, it may be much easier to justify piggybacking on a corporate spend management tool and applying it in the company’s transportation. In fact, the additional savings gleaned from more effective management of freight costs may be a key element in selling management on the value of this investment.

Identify and Collaborate with Key Transportation Vendors

The cutbacks in truck capacity make it that much more important to align your company with its key transportation suppliers. These companies can often identify wasteful transportation expenditures and provide insight and wisdom as to how to remove unnecessary costs from a company’s transportation expenditures.

Final Thoughts

In 2010, the message is do more with less. This applies to the freight transportation side of the business. Shippers that do not aggressively attack freight spend management may find themselves at a competitive disadvantage. Following these basic principles can help shippers deal more effectively with the realities of the slowly recovering economy.

The last blog looked at how shippers and carriers have elevated their game in the area of freight rate negotiations over the past 10 to 15 years. In this blog the focus will be on how shippers should prepare themselves to achieve the optimum results for their company. These are some proposed steps to follow.

1. Align Freight Rate Negotiation Strategy with the company’s Business Strategy

The recession of the past few years caused many companies to make fundamental changes in business strategies. These changes included integrating production into fewer facilities, closing warehouses, and/or reducing inventories. As 2010 unfolds, some companies are experiencing modest increases in demand. All of these developments have a direct impact on modal choices and freight rate negotiations. With customers ordering in smaller order sizes, will this require more LTL shipping? Instead of full loads can multi-stop truckloads with drops be a solution? Can customer delivery intervals be extended to allow sufficient time to build larger shipments and move them on designated days of the week? The first step in preparing to negotiate freight rates is to create a clear Freight Transportation Strategy that is in alignment with the company’s Business Strategy.

2. Reformat Historical Freight Shipment Data in Line with 2010 Transportation Strategy

Shipment activity levels and patterns in 2008 and 2009 may not be indicative of what may be experienced in 2010 and beyond. Since carriers need data upon which to create their rate quotations, there is a need to organize and structure shipping data in a way that is indicative of 2010 shipping expectations. If the plan is to move more full loads and this is not what has happened in the past, there is a requirement to convert historical data to current realities.

3. Do a “Deep Dive” on Modes and Carriers

In order to save money on freight, it is essential to perform due diligence on prospective business partners. The day of calling in a half dozen carriers in each mode and asking them to refresh their prior year rate quotes is not a viable strategy in the current environment. On every major shipping lane, there are carriers looking for head haul and/or backhaul traffic. The task is to find them. If this is done in a superficial way, this will not result in achieving competitive freight costs. Since carrier requirements change each year, the search for carriers is a never-ending process.

One large shipper with whom I spoke two weeks ago had recently completed their truckload RFP exercise. They approached 350 truckload carriers. While this may be overkill for small to mid-sized companies, the point is that to find the best rates, doing a “deep dive” on prospective carriers is a mandatory.

4. Use the Best Analytical Tools Available

If your company is spending more than a couple of million dollars on freight, you need good quality tools to analyze the quotes that you receive. As mentioned in the prior blog, there are companies such as mine that have years of experience in helping shippers execute freight RFP’s. My company and others use some excellent tools that are custom designed to evaluate the quotes or bids received and perform a variety of analyses. These tools can find creative ways of saving money on freight.

5. Add Multi-Modal Experience to the Negotiating Team

The modal options evolve each year. In addition to parcel, LTL, truckload and carload transportation, there are a host of other mode and hybrid options. Intermodal shipping via trailer or container, B-trains and “turnpikes” (long combination vehicles consisting to two 53 foot trailers), short sea shipping, and “roadrailers” are just some of the options available today on some shipping lanes. To build an effective freight negotiating team, shippers in 2010 should add this expertise on a full time or outsourced basis so as to ensure all cost reduction options are evaluated.

6. Learn how to Leverage Business Volumes and Negotiate Effectively

It is essential that every shipper gain an understanding of how to take their inbound and outbound shipping volumes and leverage these volumes with transportation providers. This starts with gaining an understanding of which transport companies would derive the most benefit from the company’s freight. Conducting multi-round RFP exercises allow shippers to identify and increase leverage over time.

7. Calculate the “Total Cost of Ownership” for Each Scenario

Freight transportation costs are just part of a company’s distribution costs. To perform a meaningful analysis of freight costs, they must be integrated with production costs (that can vary by plant), handling costs, warehouse costs, and cross-dock costs to calculate the total cost of ownership. This allows a company to compare alternate supply chains from different locations to serve specific geographic markets.

8. Take your Time

Conducting a multi-round sourcing project takes several months. By rushing, by cutting short on the number of rounds or the level of analysis performed, this limits the level of cost savings achieved.

As the “re-setting” economy evolves over the coming years, freight transportation sourcing professionals need to employ a full arsenal of skills and tools to provide full value to their employers.

Some profound changes have taken place in the freight rate negotiation arena over the past ten to fifteen years. On the shipper side, the calibre of people entering the logistics profession has improved significantly. Many young professionals coming out of university bring a much more advanced set of set of skills than existed in the past. As they enter the industry, they now find transportation management software (TMS) software to optimize loading, mode selection and carrier management, network optimization software to look at the best location of plants, warehouses and truck routes and route planning software to minimize driving time between stops. The new generation of transportation professionals can now apply their advanced supply chain education and the available software tools to perform a variety of transportation related analyses.

In addition, freight RFP’s increase in sophistication each year. Computer modelling tools allow shippers to request round trip rates and contingency pricing from their carriers. The computer programs can factor in consolidating provincial or state or regional volumes to better leverage freight volumes. They can compare modal options as well as factor in warehouse and handling costs in order to evaluate various total cost of ownership scenarios.

If the shipper does not have the software to conduct these types of exercises, he can reach out to companies such as mine or other firms that provide these capabilities. Various specific software solutions such as SMC3’s Bid$ense and Schneider Logistics’ Bid Smart are accessible to run a professional and cost effective freight bid. Supply chain executives also have the option of going to a 3PL (if transportation is not a core competence) and asking them to conduct the RFP and then manage the transportation function on their behalf.

While shipper freight rate analysis and negotiation skills have been upgraded in recent years, the carriers have not been standing still. For the most part, the industry giants in each sector of the transportation industry have elevated their game. Fifteen years ago CN Rail was a bloated and inefficient crown corporation. It is now a profit generating machine with an operating ratio in the high 70’s. The fact that a shrewd investor like Warren Buffet is willing to pay $24 billion for Burlington Northern Santa Fe Railroad, tells you how highly he views the rail sector. They have made great strides in asset management and cost control. The railroad sector of the freight industry has become much more profit driven over the past decade.

The leading long haul truckload carriers have refocused their business growth strategies on regional markets where they can better manage empty and out of route miles. In the case of J.B. Hunt, they have made a very successful transition to a multi-modal operation with intermodal transportation being their engine of growth.

The LTL sector is now dominated by FedEx and UPS, two very diverse and sophisticated transportation organizations that are able to offer air and ground parcel delivery, LTL freight, logistics and a host of other services. In other words, they have positioned themselves to meet an ever increasing array of supply chain requirements. They have upgraded their costing models to improve their evaluation of LTL and multi-modal business opportunities and select those that are the best fit for their organizations.

As these two scenarios were playing out, the world hit a speed bump in September, 2008. As a trucking executive said to me this week, “I woke up one day in September of 2008 and shippers stopped shipping. It was scary.” This caused both shippers and carriers to refocus their energies on cost reduction and profit optimization.

Shippers sought to draw down inventories and leverage their bargaining position to reduce rates. Carriers responded by parking excess equipment, cutting staff and reducing costs.

The results vary from segment to segment. The railroads were in the best position to take equipment out of service. With only six truly class one railways, they exhibited the best pricing discipline and fared the best, from a financial perspective, during the recession. The truckload carriers also took equipment out of service and targeted intermodal traffic to fill their trucks. They saw rates fall by an average of five percent in 2009. The LTL sector fared the worst. While some efforts were taken to reduce terminals and provide more direct routing of freight, some carriers placed too much emphasis on running troubled YRCW off the road. The strategy failed as LTL rates dropped an average of 10 percent last year. That segment of the industry is now not economically sustainable and is in need of restructuring.

While one can point to thousands of trucking companies that have gone out of business during the recession, there are very few tier 1 and tier 2 trucking companies, logistics organizations or railroads that have failed. Clearly, their pricing discipline, cost reduction initiatives and costing models, have enabled them to remain in business during this very challenging period. The question still remains. As we come out of the recession, will the banks prop up some of the weaker players, particularly in the LTL and truckload sectors or will we finally see some industry rationalization?

This sets the stage for some very interesting rate negotiations in the months and years ahead. The economies of Canada and the United States are on the mend, albeit slowly. Shippers now come to the negotiating table with the need to further rationalize their operations and drive costs out of their supply chains during a period of modest economic growth. Carriers come to the table with the need to improve yields on business that suffered revenue erosion during the Great Recession. This will require both sides to continue to elevate their game to achieve the maximum profits for their respective organizations. The next blog will focus on the most critical skill sets that shippers will require to successfully manage their freight programs during these changing times.

Over the past few years, shippers and carriers have begun to acknowledge the importance of having well defined sustainability programs. While the move to green strategies started several years ago, the fuel price increases in 2008 were the impetus for many companies to take their programs to the next level. Shippers now look at their carrier sustainability programs not just as desirable or environmentally friendly, but as a requirement to secure their freight business.

Working with shippers over the past few years on carrier procurement and freight rate negotiation initiatives, my company has observed more of our clients challenging their potential vendors to articulate their green strategies. Specifically, carriers are being asked not just about transit times and dropped trailers but about their miles per gallon per truck and whether they are a Smartway carrier. An ever increasing number of shippers are recognizing that carrier sustainability strategies are cost reduction strategies. Carriers that limit their speeds and monitor their idling times are more efficient than carriers that are less focused in this area. Ultimately, the more fuel efficient carriers are lower cost carriers. This should translate into lower rates and more efficient supply chains.

As shippers evaluate prospective carriers as potential business partners, there are a number of specific items they should address as part of their RFP activities.

• Carrier Sustainability Metrics

Energy efficiency is quantifiable. Carriers measure miles per gallon, out of route miles, driver speeds, and empty miles. When a shipper meets with a prospective carrier, it is fair to ask the potential vendor to provide an overview of their energy management metrics. Carriers that stumble on these questions or don’t know the answers are providing you with a warning signal. They are telling you that they are not well managed and/or their sales people are poorly informed. This is a red flag.

• Participation in major Sustainability Programs such as Smartway

Smartway is a voluntary program designed to increase energy efficiency while reducing greenhouse gases and air pollution. The designation means something. It tells you that the participating carriers are seeking to improve aerodynamics, freight logistics, engine idling and driver training regarding fuel economy. Shippers should be asking themselves, do they wish to partner with companies that are not pursuing these objectives when their competitors are fully engaged in this area? For participating carriers, ask them for their “Smartway Shipper Index Factor” and if they are or have been a Smartway Excellence Award winner. This will provide you with an evaluation of how well they are performing.

• Driver Training

This is the essence of any sustainable program. Training establishes discipline and consistency. Well trained drivers maintain their vehicles properly, monitor their speeds at designated levels and manage their idling time. They are the key resource in any carrier sustainable program.

• Sales Training

Carriers that have well planned sustainable initiatives should be telling their clients about them. Rather than having to pull this information out of them, they should be proud to tell their clients and use this as a marketing tool to gain competitive advantage. This is good public relations and good business.

• Carrier Initiated Green Cost Savings Suggestions

Those carriers that do business with your firm observe your freight management practices. They experience waiting times. They see poorly configured pallets. They pick up daily LTL shipments (that could be consolidated into partial or full loads). In other words, they see first-hand, the opportunities to be more energy efficient. You should expect your top carriers to offer suggestions on how, working together, both companies can be more energy efficient and reduce costs.

Energy efficiency will become far more important in the years ahead. As the world’s supplies of fossil fuels are depleted, governments will be wrestling with Cap and Trade legislation (and other programs) to reward energy efficiency and punish wasteful and inefficient energy practices. This is certainly the time for shippers and carriers across North America to formalize their short and long term energy efficiency initiatives.

Jon Langenfeld, Associate Director of Research, at Robert W. Baird & Company delivered a very comprehensive and insightful presentation on the state of the American domestic freight transportation industry at this week’s SMC3 conference in Atlanta. While Jon was one of the more upbeat speakers at the conference, his 2010 outlook on the LTL segment of the industry was somewhat less positive.

Jon highlighted the double digit declines in tonnage and revenue per hundredweight among the major publically traded LTL carriers in 2009. He also noted that despite some terminal closures, LTL capacity has been largely unchanged. The most troubling comment was that the profitability of the entire industry is now in negative territory and is not sustainable.

This situation is not expected to change that quickly since LTL demand typically lags truckload demand. Truckload demand is showing only tentative signs of a turnaround. Excess capacity, weak demand, aggressive pricing, low fuel surcharge revenues, lender leniency in allowing financially weak carriers to remain in existence and the increased presence of freight brokers and 3PL’s as resellers of LTL service are all conspiring to make a bleak situation remain difficult, at least until mid year or longer.

This begs the question, what can carriers in this sector do to increase revenues and yields at such a challenging time? Many of the tried and true approaches were implemented in 2009. Carriers have attempted to speed up their networks by reducing handling costs and offering more direct service lanes. They have cut staff and reduced wages. They have reduced rates in an effort to increase volumes. With too many LTL carriers chasing too little LTL freight, these approaches are having limited success.

One approach that was mentioned in Atlanta and has been raised in other forums is the option of forming carrier alliances, specifically another North American LTL network similar to the Reliance Network. There are still a number of regional LTL carriers in Canada and the United States that are not able to offer full coverage of North America. Some have alliances with specific carriers in certain lanes but that is it. Forming alliances with a broader group of carriers allows the various team members to increase the volume of freight picked up from and delivered to new and existing shippers and as a by-product, improve yields.

There are essentially two types of alliances, operational alliances and marketing alliances. In an operational alliance, the participants serve as pick-up and delivery agents for each others’ companies but do not actively sell each others’ services. In a marketing alliance, the players go one step further by actively selling the full range of services of all of the member companies. While the former approach can generate some additional business, the latter, when done properly, can produce much bigger results.

Keys to Success

To make a marketing alliance work, the following elements must come into play.

1. Integrity
You have to be able to trust your partners and be able to communicate your plans for the future. This includes expansion plans so there are no surprises and ill will down the road.

2. Commitment
All participants have to commit to the ongoing sales and marketing of the alliance’s service capabilities.

3. Seamless Service
The service between carriers must appear seamless to the customer and the transit times should be as good as or better than what is available in the market today.

4. Through Tracing
All partners should be able to direct customers to their respective websites. Customers should be able to trace all shipments given to their partners in the same manner as their own regional shipments.

5. Through Pricing
There should be tariffs in place that offer pricing that is comparable to what a shipper would pay with a national or super-regional carrier.

6. Joint Marketing
There is a need for sales collateral that highlights the services of the full consortium of companies.

7. Sales Training
The sales people of all of the partners need to be trained on the services, transit times, value added and pricing levels for all of the inter-regional players.

8. KPI Development and Sales Management
KPI’s need to be created and monitored for this initiative. They must have the ongoing support and visibility of the senior sales and management teams to maintain the momentum of the alliance.

The Pitfalls

There are some potential problem areas with this approach. We don’t live in a static world. As a result, the coverage areas of the various alliance partners may change over time. To make these programs work, there must be a level of openness, trust and information sharing. This is not easy for everyone. It is also not always easy to maintain enthusiasm for the program over time, as carriers deal with other priorities and initiatives that arise. There is the issue of exposing your customer list to companies that could ultimately become your competitors.

Also, how do you deal with non-performing members and with potential new members who would like to join the club, particularly when you already have an incumbent in place that serves the same geographical markets? There are no easy answers to these questions. They can all be addressed but it takes hard work and good communication to come up with solutions that are acceptable to all of the partners.

However, the rewards can justify the effort. The national LTL market is in flux. The current industry paradigm is not sustainable. There is a lack of LTL freight in the market. Regional joint marketing programs or the formation of a new North American LTL network allows all of the participants to generate new revenues and increase yields without adding terminals and sales personnel.

Should any of you need help in forming and successfully implementing an alliance with other LTL carriers, please feel free to contact me at (416) 932-9701 or e mail me at dan@dantranscon.com.

As we all watch the images on television of the devastation in the Port-au-Prince area of Haiti, the other issues in the world seem so trivial by comparison. This impoverished country is dealing with one of the largest natural catastrophes in history. As many as 45,000 people may be dead. Countless others are injured, starving, thirsty and without shelter, money or clothing.

It is gratifying to see the relief efforts that are being offered by many countries and the huge outpouring of financial aid from around the world. Multiple operations are underway, including flights carrying aid on behalf of the International Committee of the Red Cross.

French and German search and rescue teams flew to Haiti Thursday to assist the aid effort there. The teams departed Paris Charles De Gaulle airport Thursday afternoon on a 767-300 aircraft chartered by Chapman Freeborn’s Paris office. Also on board were vital cargo supplies including medicines, purification units and power equipment. Chapman Freeborn Airchartering said it was working around the clock to arrange charters carrying aid supplies from Spain, Germany, the UK and Belgium. Other countries (e.g. Canada, Israel, and Australia) are also bringing support to the country.

However, a demolished seaport, a congested one-runway airport, a shattered communications system, and even questions about how to coordinate the multi-national relief effort delayed the delivery of aid to an increasingly desperate Haiti and highlighted the immense obstacles that lie ahead.

The Toussaint L'Ouverture International Airport in Port-au-Prince is largely undamaged, according to a report from Chapman Freeborn Airchartering, but lacks air traffic control and is overwhelmed. The U.S. Federal Aviation Administration had put a ground stop into place for all U.S.-originating civilian aircraft until 6 p.m. EST on Friday, January 15. Military flights carrying water purifying equipment, medicine and generators have been given priority to land.

A high likelihood exists of extensive airborne holding and diversions due to an overloaded airport. There are currently no slot restrictions, but this is extremely likely to change in the next few days given demand. Limited ramp space and very limited handling capacity is available. An instrument landing system is now operating. Fire cover is now in place. No fuel is available at Port-au-Prince. Carriers must fuel up prior to departing point of origin and so payloads are smaller.

Making matters worse is that supplies cannot come in by sea. Haiti's main seaport has "collapsed and is not operational," says Maersk Line's Mary Ann Kotlarich. The main dock is partially submerged. Cranes that moved containers on and off ships at the port are now partially under water and listing badly. Ships carrying supplies have nowhere to dock. Numerous maritime companies are trying to devise stop-gap solutions, but nothing is in place yet. This is leading to desperation and the threat of violence.

Clearly there is great need for a coordinated logistics and security effort. The situation in Port-au-Prince is very precarious, said Andy James, a spokesman for Chapman Freeborn. “Santo Domingo currently provides a viable alternative to Port-au-Prince,” he said. Santo Domingo is the capital and largest city in the Dominican Republic, which shares the island with Haiti. It is several hours’ drive along difficult roads from the earthquake zone. Santo Domingo airport in the neighboring country of the Dominican Republic provides a viable alternative to Port Au Prince airport.

Aid workers also are calling for more security to get goods distributed in an increasingly chaotic and dangerous environment. An aid coordinator told Agence-France Presse some trucks on the road into Port-au-Prince were targets of hijacking attempts on Thursday.

Clearly there is a requirement to establish a centralized command and control process to bring order out of chaos. The short term priorities are to:

• Develop a comprehensive plan to deal with key challenges this country is facing.
• Provide food, water, security and shelter to those people that have been displaced from their homes.
• Re-establish a communications network in the country.
• Treat the injured and rescue those people who are trapped. Time is running out for people who are trapped and have been without food and water for four days in 35 degree temperatures.
• Remove the decomposing corpses that may lead to the spread of disease.
• Organize a massive clean-up effort
• Develop a plan to channel the donations from around the world to Haiti’s most pressing needs.

President Obama has pledged that the United States will not forsake Haiti. That is a bold statement and it will be a tremendous challenge to follow through on this pledge. Haiti is the poorest country in Western Hemisphere. The per capita income is $660. One percent of the population control 50% of the country’s wealth. Haiti has no oil, gas or coal and demolished much of its forests in its search for energy. Two-thirds of the population are listed as employed in agriculture and only nine percent in industry. The country is plagued by incest and domestic violence, epidemic levels of HIV-AIDS and a host of other problems.

The question is what will happen as the relief effort takes effect and the focus inevitably turns to trying to create a viable economy and life for the citizens of Haiti. Will the other nations of the world maintain their resolve to help Haiti or will they shift their attention to the next area to be hit by a disaster. With Haiti’s shaky political system, will the millions of dollars in donations help rebuild the country’s infrastructure, education, health care system and economy or line the pockets of the political elites? Let’s hope the nations of the world will take this unique opportunity to move this country in a sustainable and positive direction.

The good news is that we appear to be in an economic recovery; the bad news is that business growth is so modest that it is almost imperceptible. The challenges this year for truckers are twofold: replace revenues lost in 2009 and improve the yield or margin on their freight.

In 2009 shippers had the upper hand. With declining volumes, shippers took advantage of the situation to issue and reissue RFP’s. Rate decreases were easy to achieve. Year / year revenues at North American trucking companies declined by 6, 16, 22, 28, 30 or as high as 48 percent. Carriers responded by shuttering terminals, cutting staff, freezing pay, all in an effort to maintain margins on the reduced revenue. This helped to offset some of the damage but many companies saw their profits take a precipitous drop in 2009.

What should truckers be doing in 2010? Should carriers play a “wait and see” game in anticipation of an economic recovery or are there some strategies that should be initiated immediately to improve their fortunes? How can carriers break out of this paradigm of reducing costs in line with declining volumes and margins? There are several options that carriers need to pursue and they should all be implemented in parallel.

1. Increase Business from Existing Profitable Accounts

Many trucking companies have longstanding profitable accounts that have shown some level of loyalty. Yes, the rates on some of these accounts may have gone down in 2009 due to competitive pressure. But the chances are these customers have freight on lanes that you do not move today. They are the most likely customers to give you additional profitable business. Targeting these accounts makes much more productive use of your salespeople’s time than focusing on new prospects that play your rates off against those of the incumbents.

Go back and take a second or third look at whether or not your company can handle these new lanes. What are the barriers to securing this business (e.g. no/limited back haul, don’t want to go to these markets etc.). This is probably your best opportunity to secure new, profitable business. Rethink what your company needs to do to make this happen.

Can you move the freight through a brokerage operation? How difficult is it to establish such an operation? Could you work with a partner or competitor to use their headhaul freight as your backhaul? Could you migrate some of this brokerage business to your asset based business over time, when you have enough head haul and back haul freight to make money?

2. Change the Rules of the Game

There are too many companies playing the rate reduction game. If all your sales and pricing people are doing is shuttling back and forth to shippers’ offices with ever declining rates, you are playing a losing game. Change the game by finding out more about your customers’ supply chains. Look at what your company, possibly in conjunction with partners can do to improve the efficiency of their operations. This, in essence, is what logistics companies are doing.

They receive a mandate from a senior executive at a shipper to do a “deep dive” into their processes and procedures. They change logistics processes that allow them to perform the same tasks more efficiently, with fewer people and better systems. They lower the baseline cost, add a mark-up for themselves and then price the business so that the overall cost is less than it is today.

This is the game that more carriers have to learn how to play. While this cannot be done overnight, you have to start somewhere. This can as basic as teaching your employees how to look for and capitalize on these opportunities, hiring staff with this type of background, and/or specializing in a certain market segment where your company can be a leader. This can serve as a stepping stone to future logistics and trucking business.

3. Save Your Customers Money without Hurting Your Bottom Line

This may sound impossible but it isn’t. During my consulting work with shippers over the past six years, I am amazed at how many cost savings opportunities present themselves, even at companies with very experienced logistics personnel. These opportunities surface in a variety of forms.

Some shippers are using the wrong mode of transport (e.g. LTL versus consolidated milk runs versus over the road truckload versus intermodal). They may be shipping in inefficient ways. This can include poor order management procedures, poor scheduling processes, ineffective collaboration between Sales, Production and Logistics or inadequate dock management processes. Another lost cost savings opportunity for many shippers is poor packaging and loading. You only have to look at Wal-Mart’s success to see what can be achieved by reducing packaging costs.

Have your customers looked at their pallet dimensions? When you double stack the pallets, how much air is there at the top of the trailer or container? Is this space causing unnecessary damages? Can the pallets be reconfigured to improve cube utilization?

If you collaborate with your clients and help them take costs out of their transportation budget, this may help your company load better cubed trailers and allow both of you to make more money.

The Road Ahead

Demand will eventually increase in line with the current capacity. This will serve to elevate margins. You can play the “wait and see” game. Alternatively, your company can take a proactive approach by adopting a more expansive business development strategy, by becoming more supply chain versus trucking company focused and by becoming part of the solution rather than the problem by helping your customers remove costs from their transportation expenditures. The choice is yours.

As the North American economy begins to improve, companies are starting to hire, albeit somewhat tentatively. With the true unemployment/underemployment rate estimated to be somewhere in the range of 15 to 20%, this suggests that there is a lot of good talent walking the streets at this time.

The dilemma for executives across North America is trying to increase the odds of making a good hire. Anyone who has been in business for any length of time and who has hired staff at any level knows how difficult it is to recruit good talent, particularly good leaders. Even companies such as General Electric that have worked diligently over many years to train leaders in-house have made mistakes.

There are unique challenges in recruiting strong leaders from outside the company. The successful candidate must have an excellent portfolio of management and decision-making skills, strong communication and interpersonal skills and must be able to adapt to the culture of the company. An in depth knowledge of the industry and the business is often desirable if not essential. This is a tall order and a great deal of time, money and energy can be wasted on ineffective leaders. According to Heidrick & Struggles International CEO L. Kevin Kelly, 40% of executives hired from the outside last only 18 months.

With the supply of available human resources being so large and with the need to make good hires so great, some companies are employing a new hiring strategy, trying before buying. These companies are utilizing the standard hiring processes including multiple interviews, psychological testing and extensive reference checks. But those approaches are not infallible. As a result, some companies are auditioning their new hires for weeks or even months. In Europe and Asia, “interim executives” have long been popular. Now this practice is being adopted by North American companies.

This approach has a number of benefits. Companies can mitigate their risks by not signing a contract and by not committing to fixed costs or severance payments. They can see the prospect perform before making a commitment. Another benefit is that a company seeking an outside leader can fill a vacancy in a matter of weeks as compared to the interval normally required for an extensive job search. There are a number of companies that are competing in this niche business that have compiled rosters of prospects.

This approach also has benefits to the job hunter. As an auditioning executive, the individual can make an informed assessment of whether or not the company is a good fit for them and obtain a better sense of the political environment and culture. He or she can continue to search the job market for permanent work. The job seeker can earn an income while maintaining the search. The auditioning leader also doesn’t have to change location or one’s LinkedIn status until a permanent commitment is made.

To make this work, a company must have a very good hiring process and make a significant commitment to the “trial executive.” The new person will almost certainly interact with other employees and leaders. He or she may also have some interaction with customers. This is not an approach where you can try Joe for a month, Harry for two months and Bill for six weeks. This would be very disruptive to the company’s operations and look badly on those performing the hiring. It would be hard to imagine a trucking company CEO hiring a “test market” VP of Sales, exposing that individual to the company’s sales team and customers on a test basis and then waving good bye. On the other hand, this approach could be employed for a new sales hire to see if they have what it takes to bring some revenue on board.

There are also other approaches that work well in some situations. A consultant can perform certain activities and then leave the company at the end of the project. Similarly, a project leader can be brought on board to complete a specific task (e.g. develop a business plan to open a new market) for a designated period of time and then leave at the completion of the assignment.

The “try before buy” approach is a new niche hiring approach that is right for the times. It remains to be seen if this hiring technique will retain its appeal as the economic recovery gathers momentum.