In the most recent Transportation Buying Trends Survey undertaken by Canadian Transportation & Logistics magazine, there is an interesting set of questions that pertain to fuel surcharges. Over 68% of shippers support the view that “fuel surcharges are necessary as long as fuel costs continue to be highly volatile.” Slightly less than half of the survey respondents believe “carriers apply fuel surcharges correctly.” Over 61% agreed with the statement that “fuel surcharges are a way for carriers to squeeze additional revenues from their customers to improve their profits.” Over 55% of shippers support the view that “carriers should adjust their freight charges to market rates that include fuel surcharges and as a result simplify their billings.”

Perhaps the most interesting finding is that 25.8% of shippers have created their own fuel surcharge index. Since I interact with both shippers and carriers in my daily work, I would like to weigh in on this topic. This set of responses begs a few questions. Should shippers be taking their precious time to create fuel surcharge indices and formulas? How should shippers approach the topic of fuel surcharges? What should shippers do to optimize their freight costs? Here are my thoughts.

For shippers that use both private fleet and for-hire carriers, it is essential to be fully informed on all aspects of fuel costs and fuel surcharges. Even for carriers that use exclusively third party carriers, there is a requirement to have some familiarity with the leading indices and the current surcharges being applied. For Canadian and cross-border shippers, a subscription to the Freight Carriers Association of Canada’s weekly fuel calculation bulletin will provide you with one of the industry standards for LTL and truckload shipments. For shippers that use intermodal service or are considering it in their freight programs, they should obtain a copy of the railway/IMC fuel surcharge formulas. These differ (e.g. are lower) from the over the road surcharge numbers.

The next thing a shipper should do is to gain an understanding of the components of a freight rate. One needs to understand that a carrier’s freight rate or tariff is based on several components. There is the cost of pick-up and delivery, the line haul component, the cost for any special handling (e.g. residence, construction site deliveries, etc.) and of course, the fuel component. For LTL and small parcel shipments, there are a number of other variables that come into play such as shipment weight, density, cube, packaging etc.

Shippers need to understand that each carrier has its own mix of freight, its own fleet size and specifications (e.g. straight trucks, tandem, tri-axel etc.), its own head haul and back haul requirements in terms of both yield and volume and its own primary and secondary markets. In other words, fuel costs and surcharges are a large piece of the puzzle but they represent one element of a carrier’s total cost structure. At the end of the day, the carrier looks at each shipper’s freight and relates it to their costing model, business requirements, profit objectives and of course, market rates to determine their rate structure.

For shippers that “squeeze” carriers hard and insist that they will pay, for example, 80% of the current FCA proposed surcharge, they need to understand that their carriers will have to augment their base rates or accessorial charges to ensure they are achieving satisfactory yields on their freight. It is somewhat analogous to a carrier doing research on the costs of corrugated paper and pallets. Certainly they are important elements of the cost of the shipper’s freight but they represent only one piece of the pie.

In my view, shippers should make sure their freight programs are as efficient as possible. They should focus on those areas where they have control.

• Packaging optimization
• Shipment size optimization
• Network optimization
• Mode optimization
• Consolidation/deconsolidation opportunities
• Carrier optimization

In the case of the latter, they should do a comprehensive annual bid to make sure they are paying market rates for freight transportation, accessorial charges and fuel surcharges. To make their lives easier when it comes to analyzing the bids they receive, they should standardize on one fuel surcharge formula. In addition, they should make their freight as “carrier friendly” as possible.

The other thing they should do is have a checklist in place to evaluate their carriers on efficiency. One of the key questions for me is not what a carrier is charging for fuel; It is how well are they performing in the area of fuel economy. That will be the topic on next week’s blog.

The world of freight transportation is changing rapidly. The signs are there and they are unmistakable. Recognizing and responding effectively to these signals may help determine which shippers and carriers will survive in the years ahead. Let’s examine the components of the new paradigm of freight transportation.

The Era is Cheap Oil is Over

The steep escalation in fuel prices this year is a harbinger of things to come for shippers and carriers. This time there will likely be no major recession to bring energy prices down. The sad fact is that 95 percent of transportation modes, passenger and freight, run on petroleum products and the likelihood of finding new sources of supply or of shrinkage in global demand is highly unlikely. In fact the use of petroleum in countries such as China and India is on the rise.

The result will be tighter truck capacity, greater use of intermodal rail services, the electrification of transportation systems, the relocation of factories and distribution centres and the slow shift to cleaner, cheaper fuels. It will drive more LCV’s (long combination vehicles) or “turnpikes” and more triple trailer configurations. This may be the impetus to harmonize our laws throughout North America to remove barriers to the movement of the most energy efficient vehicle combinations across our highways. To curb use, many countries will have to begin looking at the Danish example of higher taxes on fuel inefficient vehicles and higher taxes on petroleum. Get used to it.

The Driver Shortage is Real

The driver workforce in North America is aging. The “route 66” lifestyle of the long haul truck driver no longer appeals to most people. Like everyone else, truck drivers want to be home with their families most nights of the week. After all these years, driving truck is not a certified recognized profession. The compensation for truck drivers (e.g. $40,000 to $50,000) is not great. The relentless push for freight cost reductions makes it difficult for trucking companies to raise driver wages and remain competitive. There is no “quick fix” and the problem will get worse before it gets better. Like the energy problem, the solution to this problem will take time.

Driver compensation and as a result, freight rates will have to increase. Immigration policies will have to change to bring more foreign existing and potential drivers to North America. Driver training programs will have to improve to expedite the process of providing the new pool of drivers with the required skill sets to perform as professional drivers. Shippers will have to look at their supply chains and seek out cheaper modes (e.g. rail intermodal) and more local sources of supply. The time to plan for driver shortages is now.

The key word for Shippers and Truckers will be Efficiency

Modern computer and communications technologies have revolutionized many industries and they are in the process of revolutionizing freight transportation. TMS (Transportation Management Systems) for shippers and FMS (Freight Management Systems) for carriers allow for the efficient and optimized movement of freight. An electronic on board recorder (EBOR) is an electronic device attached to a commercial motor vehicle, which is used to record the amount of time a vehicle is being driven. The relatively new Hours of Service (HOS) legislation in the United States and Canada are rules intended to prevent driver fatigue, by limiting the amount of time drivers spend operating commercial vehicles. Modern asset tracking devices can provide information on the precise location of every tractor and trailer so as to maximize their utilization. In other words, tools are now available to manage the activities of every driver and company asset. They can pick up on the time worked by each driver, identify drivers who are not energy efficient or spot trailers sitting in a yard for more than 48 hours. Not all fleets have or can afford the new technologies. In the case of some tools such as trailer tracking, they are significantly underutilized and undervalued.

The effective use of technology will separate the “men from the boys.” It will accelerate the exodus of poorly managed, inefficient fleets. It will drive down costs. The market will dictate that freight business will go to the carriers that have the most efficient networks utilizing the most efficient technology. It will go to the modes and carriers that best manage people and assets.

Social Media are revolutionizing how we Communicate with one anther

For some people, Facebook is a place with their children connect with their friends and share pictures of the daily life. LinkedIn is that annoying service that sends you invitations to connect to the networks of people you barely know, don’t want to know or don’t know at all. Twitter is a service that allows people to send out short trivial messages about where they are having dinner or their favourite singer on American Idol. You Tube is the place to find rare video clips of James Brown signing different versions of “Sex Machine.”

For those of you who think this way, you have missed the boat. These so-called social media are changing entire industries including transportation. This is the places where truckers communicate. This is where people go to hire and be hired. This is the location to find prospects and to obtain business. It is the tool to use to provide demos of your service. It is where to find loads and carriers and to learn about Best Practices in Freight Transportation. To sum up, social media are not just the place where your granddaughter posts her prom pictures; it is where your employees and customers are discussing your business. Find a tutor, read a book (online) and then get involved.

These trends are unmistakable. Avoid them at your peril. This is where the transportation business is today.

This is a very interesting year in the world of freight transportation. The economy is improving but at a very slow pace. Supply and demand for freight transportation services are pretty much in balance. Trucking companies are all singing the same song. Their number one problem throughout North America is finding qualified drivers. Carriers are replacing equipment that comes to the end of its service life but are not making additions to their fleet for potential growth. Adding capacity without the drivers to move the rigs and customers that commit to provide the freight is not a sound business approach.

Carriers are being very strategic in how they allocate their capacity to their customer base and to uncommitted prospects. Improved asset management technology is allowing transport companies to manage their fleet more effectively and to pinpoint (and charge for) abuse. Freight rates are on the rise. This is confirmed by some of the better known published freight rate indices.

While the pendulum has not totally swung back in the carrier’s favour, it has certainly tilted in their direction. Shippers are not having the same easy time reducing or controlling their freight rates as they did during the Great Recession.

While freight bids are still prevalent, there are less of them in 2012. Some shippers are receiving a rude awakening. Shippers that put their freight out for bid to the same core group of carriers as they have in the past, run the risk that the result of the exercise will be higher rather than lower rates. For shippers that cannot find the capacity and rates they are seeking, they run the risk of an even nastier surprise if they put their business on the spot market. Freight that may have moved for $1.30 a mile may be moving at $2.00 a mile on the spot market.

What can shippers do to mitigate freight rate increases in 2012? For companies that have not put their business out for bid in the last couple of years, it always worth testing the market with a high quality RFP that is sent to a broad range of carriers and logistics companies.

But there is so much more a shipper can do. It is always important to do an audit of one’s freight transportation business practices or hire a qualified company to do this for you. As businesses change and transportation services evolve, it is always essential to challenge all of the assumptions that are the underpinnings of a company’s freight program.

It starts with looking at the location and volume of business coming from vendors and going to customers. For many companies, this is changing rapidly. As order sizes are altered and companies become more global in their outlook, shipping patterns can vary significantly from what they were even a few years ago. As customer locations shift, it is necessary to revisit pool points, warehouse locations, shipment delivery intervals, shipment sizes and modes of transport. Shippers also need to make their freight as “friendly” as possible and work collaboratively with their carrier partners to take costs out of their transportation and warehouse operations.

The transportation industry is evolving as well. Intermodal transportation is becoming cost and service effective on lanes as short as 600 miles. Experts are predicting some industry consolidation over the next couple of years as certain baby boomers seek to exit the industry while other companies seek to add customers, drivers and trucks to their fleet.

While the economy is in the process of a turnaround, there continue to be ominous clouds. Oil prices seem set to escalate and could hit jump if there is more unrest in the Middle East. The continuing economic problems in Europe and the possible slowdown in China raise further question marks about the sustainability of the recovery. In this uncertain world where capacity is tight, drivers are hard to find and freight rates are on the rise, shippers need to look at their full range of supply chain processes and at the full arsenal of cost reduction opportunities that exist to keep their freight spend under control.

The new Freight Management Best Practices group on LinkedIn now has over 150 members. Feel free to join the group and don't be shy to share your views on how shippers and carriers can run more efficient, profitable operations.

This past week I had the opportunity to speak with some of North America’s leading truckers. Other than the “head shots” in this year’s National Hockey League playoffs, the other number one topic of discussion on everyone’s mind is the issue of driver shortages. I also had an opportunity to read what the Canadian Trucking Alliance labels “a new, eye-opening report” from the Blue Ribbon Task Force they established in 2011 to address the impending shortage of qualified commercial drivers in Canada.

In this blog, I would like share a few thoughts on this hot topic.

The problem is real

There are some shippers who believe that this issue is manufactured by the trucking industry to help sell freight rate increases. Let me assure my shipper friends that this is not correct. Trucking companies all over North America are having difficulty attracting “qualified drivers.” By this term we mean skilled professional drivers or people interested in becoming professionals.

This shortage is being created by an aging workforce, lifestyle issues (e.g. having to spend time away from home), a lack of interest from women, the challenges of the work, the level and structure of the compensation and the fact that driving truck is not viewed as a profession. The fact is that while there are millions of Americans and Canadians out of work, driving truck is not considered an option for most people.

There is no “quick fix”

This problem is going to be with us for a while. It is going to begin having a significant impact on truckers that don’t craft a well thought out driver recruitment strategy. They are going to begin losing business to those companies that have drivers.

It is also going to begin having a more significant impact on shippers. Some companies are going to have problems moving their freight. They are going to have trouble finding carriers with capacity. They are going to have to switch from truckload to LTL or begin paying more. Get used to it and begin expanding your carrier base to minimize the impact of the problem.

What will it take to solve the problem?

Take responsibility for solving the problem

The Task Force prides itself on the fact that truckers are taking ownership of the problem. According to the report, "industry leaders need to make a strong statement demonstrating to current and future drivers that we are serious about coming to grips with the issues that underpin the driver shortage." The CTA report sends a loud message that the leading trucking organization in Canada has a sincere concern and is seeking solutions to the problem.

Create a Recruiting Strategy

This responsibility falls on governments and trucking companies to solve. Governments need to develop immigration policies to encourage skilled drivers or those individuals seeking a driving career to come to North America. The CTHRC and other governmental bodies are working on this. Trucking companies also need to craft strategies to secure the type and number of drivers best suited to the needs of their organization. This varies from company to company.

Address the Lifestyle Issue

Truckers need to look at making the profession more attractive. This includes looking at how to create more turns and relays so drivers can be home at night and have better quality of life. Increasing the use of intermodal service for long haul movements also has to be part of the solution. Dispatcher training is critical to ensure drivers are treated with dignity and respect.

Make Truck Driving a recognized Profession

This will take collaboration between government, carriers and shippers. There needs to be a universally recognized truck driver certification program. The program will need to address safe driving skills, interpersonal skills, making effective use of computers and communications, diet, exercise, personal and lifestyle management. This will create a pool of professionally trained safe drivers. Trucking companies need to invest in these programs and shippers will need to seek out companies that employ professionally trained and certified drivers.

Start Building Capacity now

Almost every trucker is singing the same song these days. We will replace our fleet but not make any additions for growth until there is a demonstrated upswing in the economy. This is a direct result of the impact of the Great Recession that caused many truckers to park equipment.

The CTA report concedes there is merit – at least in the short-term -- in the argument that a driver shortage is good for the industry in that it creates tightness in capacity which in turn places upward pressure on freight rates. Obviously the “industry” referenced in the quote is the trucking industry and not shippers or the economy.

The market is going to take care of this problem in the years ahead. As the economy improves, there will be increased demand for trucking services. Shippers will gravitate to carriers that invest in their fleet and drivers. Carriers that are trying to harvest their current fleet and not make the necessary investments will lose customers and be left behind. This is what will drive carriers to move from their current yield optimization strategies. More carriers need to begin planning their growth strategy now for both equipment and drivers.

Make CSA a North American Program

While some argue that the CSA program in the United States (that applies to drivers who cross the U.S. border as well) is a cause of the driver shortage, the fact is that this program, that is in the process of being refined, elevates the quality of the profession and weeds out substandard trucking companies that do not put a proper priority on safety. Long term, this is a good program for the trucking industry. The CSA program needs to become a North American program and needs to be refined over time to maximize its effectiveness.

Create Best Practice Driver Compensation Programs

During my discussions with truckers this past week, I heard a number of proposals on how to improve driver compensation. These range from paying drivers an hourly wage rather than rate per mile to tying incentive pay to the achievement of various metrics (e.g. stops per hour, safety record, etc.). Improving compensation is clearly part of the solution.

Shipper support for Carriers employing Professional Drivers

Truckers must focus on making their operations as productive as possible. This includes using the most advanced TMS systems linked to the most cost effective tractor and trailer tracking. In other words, truckers have a responsibility to run the most efficient operations possible. Shippers don’t have to pay for the inefficiencies of their carriers.

People who are potential truck drivers have career options. They can go into construction or a host of other jobs. Driver compensation will have to keep pace with remuneration in other professions.

Freight rate increases should go to those carriers that are the most efficient and can demonstrate how these increases are tied to investments in making their operation even more efficient.

Shippers must be part of the solution to the driver shortage problem. There is a cost associated with recruiting, training and compensating professional drivers. Shippers will likely continue to have the choice between using lower quality carriers that have inefficient systems and don’t train and pay their drivers well to companies that use carriers that provide a high quality service, utilize the best technology and the most skilled drivers. The latter will likely come at a premium.

Summary

Carriers need to plan now to ensure they have the fleet capacity, drivers and technology to run a productive and efficient operation. Otherwise, they risk being left behind. Shippers need to understand that the driver shortage problem is real and that they are part of the solution. Part of the solution is selecting carriers that invest in technology, equipment and professional drivers.

At a recent Driving for Profit Seminar in Toronto, Lou Smyrlis, Editorial Director of Canadian Transportation & Logistics Magazine, led two trucking company investment advisors, Doug Nix, Vice Chairman of Corporate Finance Associates and Doug Davis, Independent Director, Pro-Trans Ventures Inc. through a discussion of how to buy and sell trucking companies in 2012. Here is what they had to say.

From a buyer perspective, they encouraged companies to be proactive in seeking out prospective acquisition candidates. Since so much about buying is timing, it always important to plant the seed and remain in contact. While a trucking company’s leaders may not be ready to sell their enterprise in the second quarter of 2012, it is at least important as a purchaser to express your interest. One should also keep in mind that the purchase process itself can take six to nine months or more complete.

The buyer should carefully think through some key questions such as “why” make this purchase, what are the underlying business risks of a potential acquisition, do they have the investment advisor team in place to guide them through the process and do they have the “bandwidth” (management team) to manage the acquisition? In other words, can the company manage its current base of business while it is trying to assimilate new customers, new employees and possibly fit two cultures together?

The two advisors mentioned that they use a valuation multiple for an asset-based business of 3.75 X normalized EBITDA. The word “normalized” is an important concept since this refers to what the earnings will look like when certain expenses or withdrawals that are taken out of the company by the current owners are removed from the income statement to better reflect what the business will look like on a going forward basis.

The purchaser must look at a number of variables in determining how to pay for the company. The advisers related it to buying a home. The purchaser looks at what they can make in terms of a down payment and the level of mortgage they wish to carry. Similarly, when buying a trucking company, one needs to consider the financial structure of their offer. This involves an evaluation of cask payment, business loan and earn-out. The latter is a common term that refers to principle of paying the seller part of the purchase price from monies earned by the business over a period of years. If the sellers remain with the business after implementation and help maintain the income flow, they are rewarded with a business retention bonus for their efforts.

The quality of the business is another very important issue to consider. “Quality is remembered long after the price is negotiated.” Another expression one often hears is that “you get what you pay for.” Fixating on a “bargain basement price” can result in disappointing results. The investment advisors also cast doubt on the notion of buying trucking companies for the purpose of acquiring drivers. They suggested that if you are interested in acquiring drivers, one is better served to purchase a driver service company.

From a seller perspective, they argued that it is the “right time to sell when you are ready to sell.” Clean up your balance sheet by normalizing earnings before the company is offered for sale. Also clean up the office and the fleet to make the business look as attractive as possible. Engage in a competitive bidding process to ensure you receive the best price for the business. They also encouraged sellers to give some serious thought about what they wish to do with the rest of their lives.

Just as considerable planning should be put in place to ensure a successful purchase, sufficient resources should be applied to the post-close implementation. In addition they cautioned the purchaser against “betting the farm on an acquisition.” There are companies that placed their businesses in jeopardy by making an ill planned purchase. They highly recommend that the vendor should be incented (e.g. earn-out) to retain a vested interest in the success of the post-purchase venture. To ensure client retention, they suggested that the business has a good customer relationship management (CRM) system in place so the purchaser will have visibility in this most important area.

This was clearly a very informative interview. Congratulations to the event organizers and Lou Smyrlis for hosting and running such a valuable seminar.

Two experts in trucking company acquisitions predicted this week that we are in store for an upswing in industry consolidation in 2012. This was one of the highlights of the Driving for Profit event that was held in Mississauga this past week. Lou Smyrlis, Editorial Director of Canadian Transportation & Logistics interviewed two gentlemen who play significant roles in these types of activities, Doug Nix, Vice Chairman of Corporate Finance Associates and Doug Davis, Independent Director, Pro-Trans Ventures Inc.

In the initial stages of the interview, Lou asked these gentlemen about why we did not see more consolidation during the recent recession. The key takeaway from this discussion was that during this difficult period, trucking companies hunkered down into a “survival mode.” The recession created devaluations of trucking company businesses. Most truckers decided to tough it out until valuations improved. Lenders, who saw trucking as a core industry, chose to support the industry until economic conditions improved.

The two investment advisors now believe that M & A activity will now increase. They base this conclusion on the fact that after a 3 year hiatus, there is a pent-up demand. There is a “ton of cash” waiting to be invested. Balance sheets are healthy again. During the recession, many trucking companies right-sized their businesses. Investors will now see more efficient, stable businesses.

Demographics will also play a part as many baby boomers who are seeking an exit strategy are three years older and their timetable for leaving the industry is now shorter. We now have willing buyers, sellers and bankers. While the two gentlemen do not predict a “feeding frenzy,” they do expect to see a doubling in the volume of trucking company acquisitions as compared to what we saw the last three years.

Lou then asked these advisors about the types of deals we are likely to see. They expressed the view that there will likely be more “bolt-ons” where companies seek to expand a core business. These types of deals allow companies to “improve overheads, bring margins into line” and “reduce dependence: on certain “key customers.” When asked a question about whether we can expect to see a blockbuster deal like the Yellow-Roadway merger in the U.S., Doug Nix made the observation that the money would be there if the right plans with the right people are put in place. However he opined that he does not think Canadians have the “chutzpah” to make a deal of this nature.

With respect to the issue of Canadian companies buying U.S. based firms, or vice versa, these gentlemen reminded the audience about the poor track record Canadian companies have in buying and running successful businesses in the United States. With Canada being one tenth the size of the United States, Canadian companies are of less interest to American truckers. While Celadon has expressed an interest in acquiring Canadian truckers, their focus appears to be on “distressed” companies that are available at essentially no cost.

One of the interesting comments made by these industry advisors was the need to “grow or die.” Truckers that try to maintain their existing footprint are in danger of “overhead creep” and “complacency.” They suggested that it is time to sell if you are happy with the size of your current company and there is no longer a desire to grow the business. Over time, this could lead to stagnation or possibly risk of diminishing profits. For companies that are having success in building their businesses, the question then becomes one of whether its management team will have the competence to lead the larger organization. Will the star salesmen be able take on the role of sales coach, mentor and leader? In next week’s blog, I will share the views expressed by these individuals on how to buy and sell a trucking company, what earnings multiple is used and how to ensure a successful acquisition.

Note: The new Freight Management Best Practices group is up and running on LinkedIn. The group now has over 120 members and there are some very interesting discussions taking place. Please feel free to join the group.

As the cost of diesel fuel hovers around $4.00 a gallon in the United States and $1.30 a liter in Canada, trucking companies (and politicians) are again focusing on strategies to control energy costs that have risen forty percent since 2010. President Barack Obama firmly defended his record on oil drilling last week and ordered the government to fast-track an Oklahoma pipeline while accusing Congress of playing politics with a larger Canada-to-Gulf Coast project. Alberta, home to the world’s third largest pool of oil reserves, is working to increase capacity to transport crude amid opposition from environmental groups as companies such as Exxon Mobil Corp. and Suncor invest about C$20 billion annually in the oil sands.

In addition to increasing supply, trucking companies are instituting measures to ensure these energy supplies are utilized as efficiently as possible. Three such strategies were highlighted in a recent paper prepared by Derek Singleton, ERP Analyst at Software Advice. Here are some excerpts from Derek’s paper and from other industry sources.

Careful planning and the use of predictive technologies–such as distribution business software–can minimize the impact fuel costs have on the bottom line. Companies that manage a fleet can cope with rising fuel costs using three general strategies:

1. Streamline fuel procurement;
2. Improve operations and fleet management; and,
3. Better plan delivery routes and shipment loads.

Streamline Fuel Procurement

Managing fuel costs isn’t just about taking steps to control the costs. According to David Zahn, VP of Marketing at FuelQuest, significant savings can be realized simply by building predictability into fuel procurement budgets. Gas prices typically swing five cents per gallon, up or down, on any given day. When purchasing thousands of gallons of gas, buying at the wrong time can be devastating to a company’s bottom line.

Technology solutions like FuelQuest give companies that store gas a way to forecast demand, monitor on-hand fuel, and procure at the best market price. Automating the fuel procurement process, says Zahn, typically saves companies four to six cents per gallon.

Long-haul carriers don’t have the luxury of being able to fill up on-site. Companies that transport long-haul freight should consider fuel optimization programs that indicate where to refuel and how many gallons to fill at each location to minimize total fuel costs. Maps with turn-by-turn directions – even those designed for truckers – are available free from a number of web sites, including Truckinginfo.com (powered by ProMiles Software Development Corporation). These services do a good job of routing and costing. On the other hand, full-featured, trucking-specific routing and mapping software used by many large carriers can do much more than tell you which highway to take, when to turn left and right and calculate a trip cost.

Many packages are integrated with a carrier's management and dispatching software to not only give drivers detailed driving instructions, but also provide fleets with useful management data and automate many record-keeping tasks. When tied into a fleet's business management software, some routing packages can become powerful sales and management tools. These packages can calculate miles for billings and settlements, optimize fuel purchases, locate truck stops and fueling sites along the route, record state mileage data for fuel tax reporting, identify truck restrictions or construction along a route and compute lane rate information.

The most recent demand is for fuel optimization programs. ProMiles now includes a fuel optimization module built into its flagship software and offers a stand-alone fuel program. Over the last year, fuel purchase optimization has become the most requested feature since it saves money for fleets and owner-operators.

With the ProMiles fuel-optimization module, users enter their fuel network information, mpg, tank capacity, a beginning fuel level and an ending fuel level. The program then looks at the truck's fuel level at any point along the route and suggests where to fuel and how much to buy. This allows the user to optimize retail price or price minus IFTA taxes collected at the pump.

Improve Operations and Fleet Management

Any cost savings from purchasing fuel at low prices can be nullified by transporting with an inefficient fleet. Most efficiency improvements–such as streamlined trailer aerodynamics or retrofitting the engine for renewable fuel use–require significant capital investments. However, there are several controllable factors that can boost fuel efficiency for a fraction of the cost.

One of the biggest boons to fuel efficiency is employing highly-skilled drivers, which can improve fuel efficiency by five to 20 percent. Roy Craigen, President of Transcom Fleet Services, suggests testing drivers beyond licensing standards to ensure they’re versed in industry-standard driving techniques, such as accelerating smoothly and minimizing idling. Beyond that, routinely monitoring things like tire air pressure and speed go a long way toward conserving fuel. Here are a few quick stats Craigen shared with Derek in a recent conversation that show the impact driver actions can have:

• A three percent variance in air pressure impacts fuel efficiency by one percent.
• For every 10 MPH over 55 MPH, you consume 10 percent more fuel.
• A 100 truck fleet operator can add over $700,000 to its bottom line by improving fuel efficiency just a half a mile per gallon.

Better Plan Delivery Routes and Shipment Loads

A final strategy for reducing fuel costs is to plan more intelligent routes and truckload shipments. Both of these goals can be accomplished with transportation management system (TMS) software. TMS software helps fleets suppress fuel costs by planning routes in a way that minimizes miles travelled and the number of stops. The resulting efficiency gains can help fleets make more deliveries within comparable operating hours. When used in conjunction with a well-trained dispatcher, this can be a great way to minimize things like time spent in fuel-wasting commuter lanes.

Creating intelligent routes is complemented by load planning features that ensure trucks leave with a fully-stocked load to reduce return trips. This limits fuel surcharges incurred by making less frequent shipments. It also helps make difficult decisions, such as whether to drop off the heaviest load first–even if it’s farther away–to make the rest of the drops with a lighter, more efficient vehicle.

As Derek stated, companies that put these strategies to use will be prepared to deal with the high fuel prices of today and tomorrow. By reducing the impact of rising fuel prices, companies with fleet operations can maintain competitiveness without sacrificing their bottom line.

Last weekend I was struck by an interview on leadership lessons in The New York Times. It appeared in the “Corner Office” column of the Sunday Business section. The interview was conducted with Tracy Matura, general manager of the Smart car division of Mercedes-Benz USA. During the interview, Tracy was asked a question about what she asks prospective candidates whom she is seeking to hire. Here is what she said.

“Tell me who your favorite boss was and why, and tell me who your least-favorite boss was and why.” Tracy commented that this gives you a sense of what leadership style works best for this individual. “I would also then ask them about a time they took a risk and failed. I have never hired people who have told me they’ve never failed. You don’t learn if you don’t fail.”

The interviewer then challenged her on the issue of whether anyone ever admits that they have never failed. Tracy responded by saying that people might say, “You know, I don’t think I’ve ever really had a complete failure. Really. I don’t even ask the question in terms of just business. Everybody has had some failure in their life.”

This led the interviewer to try to understand the underlying rationale for the question. This was her response. “Here’s what I want: My leadership style is to be transparent and authentic, so if you’re going to tell me you’ve never failed, then it makes me wonder if you always hide your failures. I don’t like that - - surprises are bad for everybody. I can’t fix or try to fix something I don’t know about. Some people have that fear factor if they admit to failure, as if they say to themselves, “If I say I failed, she’s going to think I’m a loser and not hire me. Quite the opposite.”

While Ms. Matura’s comments reflect what she is looking for in a prospective employee, the person being interviewed has an obligation to try to determine the management style of the prospective boss. In order to make this assessment, the interviewee needs to ask a similar set of questions. “Tell me about the employees you hire with whom you have had the most successful relationship and why, and tell me about the employees you hired that were the least successful and why. How would you describe your leadership style? Please share with me some of your teams’ successes and failures. How do you describe your goal-setting process, how do you measure results, how do you communicate those results and what is the performance review process? Also, please describe the work environment that you try to create.”

During or at the end of an interview, many interviewers will ask the question, “Do you have any questions you would like to ask me?” Well, this is your opportunity to ask these key questions that can determine your potential success or failure with your new employer. Take advantage of this opportunity to do your due diligence.

This issues raised in the interview caused me to reflect on my many years in the corporate world and the other ramifications of the question being asked by the interviewer. Success and failure are terms that have relevance in the context of specific measurable outcomes. This goes back to Tracy’s question about good bosses and bad. Chances are your good bosses worked with you to set challenging but attainable goals. The yardsticks were clear and understandable, the communication was good, the support was there along with the autonomy when needed. As you progressed towards the mutually agreed upon goals, you received progress reports along the way. The result is that success comes from working with a boss who is honest and open, who communicates well and provides an environment within which one can succeed. Failure often comes from working with a boss who is not as forthcoming, not as supportive, where the goals are not clear and who does not communicate well.

Success or failure will come from hiring good people as Ms. Matura defines above. But it will also come from prospective employees selecting “good bosses” with whom they can work in a collaborative and productive environment.

Note: A new Freight Management Best Practices group was created on LinkedIn last week. Over 80 people became members of the group in week 1. Please feel free to join the group and share your thoughts on how to improve our industry.

For the past several years I have been a participant in and fan of LinkedIn. It is an amazing social media tool for business. Recently I have joined and studied the discussions in a variety of LinkedIn freight transportation groups. There are many of them available to transportation professionals. Some deal with LTL freight, procurement, load postings, networking and recruitment, to name just a few.

Since Best Practices in Surface Freight Management is a passion of mine and a focus of my business, I thought it would be valuable to create a separate group to exchange ideas on this important topic. Effective today, I have launched this group on LinkedIn.

The Mission of the Group

Freight Management Best Practices welcomes transportation professionals interested in sharing, developing and implementing innovative and cost effective Best Practices in Surface Freight Transportation. We encourage members to discuss the challenges, opportunities and changes facing shippers and carriers in the freight transportation industry. Our goal is facilitate the sharing of knowledge and create a dialogue between shippers, carriers and other industry professionals. The intent is to identify and improve processes, to reduce inefficiencies in order for shippers to derive the best value from their transportation spend.

Topics for Discussion

The intent is to create a forum to discuss the full range of topics associated with running a Best in Class freight management operation. The group’s topics will include Best Practices in:
 Transportation Strategy – as part of a company’s Supply Chain Strategy, how to develop strategies that will differentiate a company from its competitors and give it a competitive advantage

 Packaging – designing innovative packaging that will minimize cube utilization and damages

 Loading and Unloading – Best Practices in loading/unloading trailers, containers and boxcars including the use of software that optimizes cube utilization

 Network Optimization – Best Practices to create the most efficient transportation network

 Procurement of Freight Services – Best Practices to select the most cost and service effective carriers, logistics providers and modes

 Technology to manage freight transportation – Transportation Management Software (TMS) and other software solutions that allow shippers to optimize the management of their freight spend

 Carrier Performance Management – The creation of key performance indicators (KPI’s) and the management of freight carriers to ensure communication, compliance, quality service and collaboration

 Private Fleet Utilization – Best Practices on how to run an in-house fleet and/or when to consider outsourcing to a for-hire carrier or logistics provider

 Border Crossing – Best Practices on how to move goods across the NAFTA borders as expeditiously and cost effectively as possible

 Energy Efficiency – Best Practices in how incorporate energy efficient processes in freight management

 Freight Audit and Payment – Share ideas on how to best manage freight expenditures

Who can join?

First you have to have a LinkedIn profile. Once you are on LinkedIn, the group is open to shippers, carriers, consultants, logistics service providers, software vendors, government officials, trade associations, media and other transportation professionals who have expertise or an interest in North American surface transportation. Sales solicitation of freight, software or consulting services is not permitted in the group. Those interested in recruiting transportation professionals or posting loads can join one or more of the other LinkedIn groups that have a focus in this area. Please join the group and share your Best Practices with your colleagues.

CSA 2010 was created by the U.S. Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) to remove unsafe commercial drivers from the America's roads. CSA, short for "Compliance, Safety and Accountability," uses a complex methodology to rate motor carriers on safety. It incorporates a "Safety Measurement System," or SMS, that assesses a trucker's on-road performance over the most recent two-year period and indicates whether the assessment should prompt the agency to dig deeper into the carrier's operational fitness.

The SMS includes seven "Behavior Analysis and Safety Improvement Categories" known as "BASICs." Embedded in the seven categories are more than 640 infractions that a driver and vehicle can be cited for. The SMS database is populated by data generated from roadside inspections triggered by infractions such as speeding on an interstate or state highway. A speeding violation gives law enforcement "probable cause" to pull a truck over and conduct what is known as a walk-around inspection of the vehicle and driver. Any infractions that are then found will accumulate as points on a company's safety "scorecard," which is updated monthly.

Fatigue Driving (hours of service), Vehicle Maintenance and Unsafe Driving are the three areas of most concern. Should the point total exceed the FMCSA's threshold for safety compliance, government inspectors will conduct an in-house audit or intervention of the company's operations. From there, a determination will be made if the driver is fit to continue behind the wheel. American, Canadian and Mexican carriers are all subject to inspection. An estimated ratio of 1 in 5 carriers is at risk of an intervention.

The CSA program is expected to have multiple impacts on the freight industry. While the system is imperfect and controversial, it is projected to move 10 percent of America’s 3.5 to 4.0 million drivers out of the industry, exacerbating the driver shortage that already exists. It will likely have an impact on insurance costs and driver training costs. Cost increases coupled with fewer drivers will serve to drive up freight rates that are already on the upswing due to the improving economy and carriers’ reluctance to make fleet additions.

The question for shippers and freight management companies is where do CSA scores fit in the selection and procurement of freight transportation services? Concerns over legal liability seem to be playing a role in carrier choice. A late 2011 shipper survey conducted by Morgan Stanley & Co. found that 55 percent of those polled were afraid to use a carrier if even one of its seven BASIC scores came in above the CSA threshold. If those shipper attitudes become more entrenched, carriers with a positive safety history but a poor CSA record may be “blackballed” and pushed out of business, according to the program's critics.

Shippers and freight management companies can expose themselves to enormous legal risks in the event of a fatal or serious accident involving a carrier they've selected and if a jury finds that they failed to give CSA scores sufficient weight when evaluating the driver and carrier. A jury could find them "vicariously liable" for damages resulting from an accident involving a carrier that they thought was a good safety performer.

This leads to the first conclusion that CSA scores should not be ignored. On the other hand, a carrier’s safety performance is still only one albeit important variable in the carrier selection process. An FMCSA spokesperson has stated that those looking to investigate a carrier's safety record should also rely on the agency's "Safety and Fitness Electronic Records System," or SAFER, which officially rates a carrier based on its most recent on-site compliance review, as well as the agency's "License & Insurance Website," which confirms that a carrier has active operating authority and adequate insurance. The agency said that by combining all three resources, users can get an "informed, current, and comprehensive picture of a motor carrier's safety and compliance standing with FMCSA.

C. Thomas Barnes, president of Con-way Multimodal, the brokerage arm of Con-way Inc., takes a “hybrid” approach toward CSA. His company monitors carriers' performance under the CSA BASICs to ensure vendors remain within the acceptable thresholds. However, the CSA scorecard is just one part of a "weighted average" calculation in determining if a carrier is fit for service. This leads to the second conclusion that other factors such as historical service performance, meeting contractual commitments, financial viability, IT capabilities, strategic importance and how a carrier addresses failures should be part of the carrier assessment.

Like Barnes, Joshua Dolan, director of global logistics and customs compliance for Philadelphia-based auto parts and service giant The Pep Boys, considers CSA scores to be a "component" of the carrier selection process. Pep Boys also uses other criteria and will drop a carrier that doesn't measure up and doesn’t take corrective action. Dolan advises companies to use outside services like Carrier411, a Norcross, Ga.-based provider that monitors CSA scores and creates quarterly alerts for customers to keep track of carrier performance.

Dolan said CSA will force shippers and freight management companies to care more about carrier choice than they have in the past, adding that "there is an expense associated with that." Safe and experienced drivers will be able to command higher salaries and benefits, and driver wages in general are likely to rise from current levels, he said. "It will become a strategic goal on the part of companies to keep drivers," he said. "Drivers will be picking and choosing companies, not the other way around."

This leads to a third conclusion. Whether you love or hate CSA, it is here to stay. Shippers and freight management companies must closely monitor the evolution of CSA and the multiple impacts it is having on the freight industry. CSA will result in improved safety which is a good thing. Unsafe drivers are a drain on a trucking company’s bottom line. But CSA will drive up costs for driver recruiting, training and compensation (to secure and retain the better drivers) and trucking company insurance. It will certainly drive up freight rates.