As reported in previous blogs, my consulting work provides me with an opportunity to meet senior sales and management personnel from transportation organizations across North America on an ongoing basis. I also have an opportunity to observe how shippers respond to the sales efforts of these individuals. There is no doubt that these are unique times in our industry. It is very challenging trying to sell freight services in the current weak economy. While a considerable amount of capacity has exited the industry, there is still plenty of capacity out there. This creates a difficult situation for freight sales personnel as there are too many trucks and too many sales people chasing too little freight.
Based on my observations over the past several years, there are a number of traits that you can identify among the sales executives that are achieving success in these troubled times. Here is my list of attributes:

1. Clarity of focus
Successful sales personnel know what their companies do best and where they can be most competitive. They know how to communicate their companies’ unique value proposition in a way that is compelling and credible. They know where they have a chance to win based on service and price.

2. Discipline
There is a lot of desperation in the market. With business soft, it is easy to slip into the trap of chasing just about any freight that moves. The successful sales people know when to say “no’”. They know how far they can go and when it is time to walk away from certain freight. By saying “no”, they send a message to the shipper that they work for a financially responsible company that is likely to whether the storm. In many cases, the “no” makes a positive statement about the sales person and the company.
At other times it is important to say “yes”, even if the business does not pay well. By doing so, you maintain an important piece of back haul freight and buy some time to migrate your head haul freight rates to a level where your round trip, triangle or rectangle is compensatory. This pricing discipline is lacking in some companies today.

3. Passion
Successful sales executives sell their companies’ services with a passion. They have a deep belief in the service performance of their operation and they are able to communicate this message with conviction. This creates confidence in the sales person and in the company.

4. Closing skills
It is amazing how many polished, articulate sales personnel cannot close. They are very knowledgeable and well dressed. They can talk about all of the things their company is doing to improve service but they don’t know how to ask the key questions, “what do I have to do to secure your business and can I have your business.” This explains in part why there is so much turnover among sales personnel in the transportation industry.
These reps know everyone in the business, they interview well and they present themselves well. But they don’t get any freight. Over time their companies get wise to their lack of performance and they are asked to move on down the road. Since freight companies are always on the hunt for good sales people, these poor closers stay two or three years at a firm until the management at that company realizes that they made a bad hiring decision. The good closer knows how to ask the magical questions that generate business.

5. Rate negotiation skills
In the current freight environment, your senior sales personnel have to be empowered to negotiate rates. It is absolutely deadly to go in on a sales call in this environment and say, “I will speak with my Pricing Manager and get back to you in a couple of days”. Corporate Traffic Managers are busy people wearing multiple hats, managing multiple modes of transport and often managing other related functions. In such a highly competitive market, the successful sales executive has to know the bottom line rate per mile or discount level that he can go to and has to be able to cut a deal on the spot. Sales personnel who are empowered to negotiate rates and are skilful in this area have a much higher likelihood of success.

6. Work for a Quality Service Company
Smart shippers do their homework. They know their carriers and they know which ones perform or don’t perform. Working for a poor service carrier can be career threatening. Many of the shippers I work with are very focused on price but they will not award business to a carrier that will damage their company’s image in the market. If your company does not have a commitment to service, you are probably better off seeking a carrier that has this commitment. As a freight sales person, you may end up being the “fall guy” for the weaknesses of your company.

7. Work for a Financially Stable Company
The same issue pertains to the financial stability of your company. I see bids where a carrier will “submarine” the rates of their competitors. However, if this carrier is reputed to be in financial jeopardy, smart shippers will find other options. They will find a financially stable company that will meet or beat the low rates.
The shipper may or may not feel comfortable discussing this issue with their financially troubled carrier. Nevertheless, it you are losing out on opportunities to increase your sales revenue because the “word on the street” is that your company is struggling financially, you may wish to look for other employment rather than wait for the “ship to go down” or wait for you to go down due to the poor reputation of your company.

8. Preparation
Successful sales people know how to size up the competitive dynamic at play. They find out where their prospect or customer needs help. They come prepared to do something better than their competitors, to get their “foot in the door” so they can establish themselves. By taking on a piece of business for the shipper that is problematic or where there is limited capacity at the designated price point, they create a foothold upon which they can build their business. Moreover, when they meet with the shipper and the “moment of truth” presents itself, they have a solution and pricing in place. They are ready to close on the spot.

9. Flexibility
Successful freight sales personnel are able to make adjustments. They are able to bridge the gap that may exist between the shippers’ requirements and the carrier’s capabilities. They are able to find a middle ground and sell it to their own management and their customers.

10. Creativity
While the expression “thinking out of the box” has become a widely used cliché, it is critical in these tough times to be fast on your feet. Shippers are seeking cost reductions; they are looking for ways to grow their markets, whether this means domestic or international shipping. As one door closes, another door may open. Success goes to those sales personnel who are able to go where their customers wish to go, or even better, are able to take their customers to places that had not figured out how to get to.

There have probably been more changes in the world of logistics in the past year than perhaps in the past ten years combined. The rapid rise in fuel costs combined with the deterioration is the U.S. housing and auto markets, the U.S. credit crunch, the soaring prices for raw materials, the rise of the economies in China, India and South America and the decline in the value of the U.S. dollar and just recently, the Canadian dollar, have changed the logistics world in ways that we are just beginning to comprehend.

Smart shippers are rethinking their current logistics paradigms and seeking ways of improving their companies’ profitability. They are responding on a tactical and strategic basis. On a tactical level, manufacturers and retailers are taking action to reduce their logistics costs. These initiatives include:

• Shifting production cycles, transit times and modes (e.g. rail to barge, truck to rail, LTL to truckload, expedited to standard ground etc.) to take advantage of lower costs of transportation
• Benchmarking their freight costs to ensure they are paying rates that are less than or equal to market rates for freight and fuel
• Conducting freight bids to ensure they are paying the lowest possible market rates
• Changing their packaging to minimize shipment sizes
• Moving warehouses closer to customers to reduce travel distances and freight costs
• Acquiring TMS (Transportation Management Systems) systems to optimize their load factors

Carriers are responding on a tactical basis as well:

• Parking trucks to remove excess capacity
• Utilizing speed limiters to optimize miles per gallon
• Reducing miles driven by eliminating LTL hubs and implementing more point to point shipping (e.g. Yellow’s Velocity Network)
• Focusing more on regional truckload markets where there is more freight density, less out of route miles and less empty miles
• Testing hybrid vehicles

On a strategic level, shippers are considering changes to their supply chains in ways that would not have been thought about a few years ago. For several decades factories and jobs were moved to low labour cost countries, since transportation costs were low and the U.S. dollar was high. That has all changed. Manufacturers and retailers are now bringing production back to North America. Here are some examples.

 Emerson Electric has moved production of appliance motors back from Asia to Mexico to reduce transportation costs
 Crown Battery Manufacturing has closed a plant in Mexico and expanded production in Ohio
 IKEA, the Swedish furniture manufacturer is building its first U.S. plant in Danville, Va.
 Volkswagen is building a plant in Chattanooga, Tennessee

Eliminating 12,000 mile supply chains and shifting production back to North America cannot and will not occur overnight. Lee A. Clair, a partner at management consultancy Norbridge recently stated that redesigning supply chain networks “is the only place you can get big dollars, but it comes with a tremendous amount of pain and lots of change inside the company.”

While the return to North American manufacturing in under way, overseas markets are becoming more attractive and in some cases, more profitable than domestic markets. The size and growth potential of these markets, brought on in part by the decline in the value of the U.S. dollar is making offshore customers more attractive.

What is the starting point for North American shippers and carriers seeking to refocus their strategies? For shippers this means a fundamental rethinking of their entire business with the customer as the starting point. The three key questions are:

1. What are your current contribution margins on your portfolio of products and how are they being impacted by the various environmental factors outlined above?
2. Where are your customers with respect to your current manufacturing and distribution facilities?
3. Where are your vendors with respect to your current customers, manufacturing and distribution facilities?

You then need to create a network model that adds the cost of manufacturing to the cost of logistics across all of your facilities. The model must be able to look at various internal (plant capacities) and external (fuel cost projections, currency value projections) variables and weigh these against the cost of serving your various clusters of customers on a geographic basis. The results of this modeling exercise should guide the restructuring of your supply chains.

Carriers need to look at the distribution of their customer base and determine the expected change in shipping patterns and modal requirements. This is very challenging since many shippers are in a state of flux and trying to figure out what to do themselves. Nevertheless, ongoing dialogue with shippers through customer meetings and possibly focus group exercises will allow carriers to plug into their latest thinking.

Shippers that cling to current business paradigms and carriers that rely on defending their old battlegrounds and refuse to “tune in” to the new realities brought on by the changes outlined above will likely be casualties of the new realities that are reshaping North American business activities and supply chains.

I started my career in the transportation industry over 25 years ago with TNT Overland Express (now TST Overland Express, a division of Transforce), a company that has continued to be leading regional LTL service provider. The evolution of the LTL segment of the industry has always been of considerable interest to me. It has been quite fascinating to watch how this segment of the industry is being transformed.

LTL service continues to be an important component of the supply chain of many manufacturers and distributors. Unlike truckload shipping, where loads frequently originate at a single location and are carried to a single destination, LTL carriers collect freight from multiple shippers and consolidate that freight for a line haul move to a terminal or hub where the freight can be further sorted and consolidated for additional line hauls or deconsolidated for delivery to multiple consignees. For companies requiring shipments of between 100 and 15,000 pounds, LTL shipping meets a vital need. In this blog I will examine some of the drivers for change and then look at how the carriers are responding.

• Speed to Market

Shippers are looking for service consistency, shorter transit times and error free deliveries within tight time windows, all at a competitive price. For many markets, second day, next day and even same day service are becoming the norm. Carriers have been retooling their networks to improve throughput, increasing their direct to destination loads with fewer “touch" points. The national LTL carriers are playing “catch up” with some of the regional LTL carriers in the shorter haul markets.

• Rise in the Cost of Diesel Fuel

The dramatic increase in the cost of diesel fuel has had an impact on all facets of the transportation industry including LTL shipping. Fuel surcharges continue to escalate in line with the rising cost of fuel. Most carriers stated in their most recent earnings reports that despite higher revenue due to fuel surcharges, the added inflow failed to keep up with rapidly rising diesel fuel and other costs. While most shippers are understanding of the need for fuel surcharges, many are “pushing back” on the level of fuel surcharges being charged.

• Economic Downturn in the United States

The decline in the U.S. economy (coupled with the rising cost of fuel) has been particularly painful to carriers that have focused on certain segments of the industry (e.g. automotive – closure of Alvan and Al’s Cartage) or employed certain business models (e.g. irregular route LTL service – closure of Jevic). While many carriers are holding on, their earnings reports reflect the difficult times being experienced in this industry. One positive development appears to be the focus on improving LTL carrier costing models. Better costing coupled with pricing discipline will likely help some carriers “ride out the storm.”
For some shippers the downturn has resulted in increased LTL traffic since it takes too long to build a full load for certain clients. In other situations, shippers hold their freight to build full truckloads or large partial truckload shipments to take advantage of the economies of shipping these sizes of shipments.

• Leaner inventories

Current trends in supply chain management require carriers to focus more on short haul markets. According to The Council of Supply Chain Management Professionals latest “State of Logistics Report,” wholesale inventory volume surpassed retail inventories for the first time in December 2007 and continued in 2008. If this trend continues, it could lead to greater demand for regional LTL service.

• Growth in the Shipping of General Commodities

According to the American Trucking Association, general commodities, most of which are finished goods delivered over the last mile in the supply chain to destination by LTLs, have grown faster than bulk commodities over the past 20 years.

• Shipper Demands for Broader Geographic Coverage

The regional LTL carriers have been working for years on expanding their geographic footprints. Some Superregionals have for the most part reached national carrier status. Certain regional carriers have pursued other options such as partnering with regional carriers in other geographic areas and forming strategic alliances (e.g. Reliant Network).

• The entry of UPS and Fedex into the LTL Shipping Arena

The entry of UPS and Fedex into the LTL arena has brought several changes. These companies have strong technology which they developed for their small package operations. They also bring a global perspective and reach to an industry that was very American or North American focused. In addition, they bring their strong brand identities. The entry of these financially strong, sophisticated companies into the LTL sector has rasied the competitive bar in their areas of expertise.

• Increased utilization of Transportation Intermediaries

Historically LTL service was provided by scheduled LTL carriers and partial truckload carriers. More recently, many shippers have been procuring LTL services from freight management companies and third party logistics companies. These companies are able to conduct RFPs on behalf of their clients, mix and match LTL carriers to meet their precise shipping requirements and then apply their strong freight management tools.

While each of these developments is significant, taken as a whole they are changing the face of LTL shipping in North America.

A freight broker has often been described as the “travel agent of the freight industry.” Freight brokers meet with shippers to determine their needs, select carriers that can perform the services requested, negotiate rates, add a mark-up and then sell these services to their clients. With so many truckers parking trucks and cutting back on truck purchases, some are turning to their non-asset based brokerage divisions to drive revenue and profit growth. Shippers now have the option of going to one of thousands of freight brokers, large and small, that provide freight services throughout North America.

Some shippers have a negative attitude towards freight brokers. Labelling them “freight pimps” or worse, they do not see their value proposition. They see freight brokers as obtaining transportation services that they could obtain on their own, without the brokers’ mark-up. This reflects a lack of understanding of where freight brokers fit in the portfolio of service providers available in the market.

Shippers have a limited amount of time to meet carriers. There are thousands of transportation companies across North America. Even the large transportation companies do not have sales representation in all North American markets and they do not provide short haul and long haul services in all markets. A broker with a large stable of carriers in their data base can often find transportation services that shippers cannot locate on their own and at rates that a shipper cannot procure on their own.

But not all freight brokers are created equal. Just as there are good and not so good trucking companies, some freight brokers are better than others. When should you consider using a freight broker? First, if you have trouble finding carriers that go to or from certain markets, you should contact a freight broker. Second, even on your major lanes, freight brokers may be able to find carriers that you cannot identify on your own. They may be able to offer better service and pricing than the “name brand” carriers serving some corridors. What are the criteria you should look for in selecting a freight broker?

Market Knowledge

You need to identify those markets where your broker has particular expertise and make a determination as to how that market knowledge matches up with your specific transportation needs. The good brokers “have a nose” for finding those carriers that need backhaul traffic in certain lanes. They can negotiate low rates, add their mark-up, make a profit and still be competitive with the asset based carriers with whom they are competing. This is the market knowledge they need to be successful.

Capacity

I look at freight brokers like any other transportation providers. While they may have “Logistics,” “Brokerage” or “Services” after their name, you are looking at them to provide consistent, on time service at competitive rates. You are expecting them to provide, through their trucking company partners, the capacity you need. They can either commit to a certain amount of capacity on certain lanes or they cannot.

Global and Multi Modal Connections

We live in an increasingly global and multi modal world. Your vendors and customers can be in any part of the world. You therefore need freight brokers with expertise in the various domestic (e.g. small parcel, LTL, truckload, intermodal etc.) and international (ocean and air freight) modes. This is increasingly becoming the norm. Since intermodal may be less costly than truck in some lanes and more costly in others, you do not want to be dealing with “one dimensional” companies that may be selling a mode of transport that is not the optimum for your company.

Integrity

You need to know if the broker is just throwing out low rates to secure your business or if he has committed partners that can provide the tractors and trailers or containers that you need. Most of all you need honesty as to what they can do and cannot do. In my dealings with freight brokers, I often tell them that if they fail on certain lanes, they may lose all of their business with my clients. It is better to do a good job on some lanes rather than over-commit and then fail, thereby losing the confidence (and probably the business) of the shipper.

Service

Since the broker makes his money on the spread between the wholesale and retail cost, there is a temptation for some brokers to select carriers at the lowest cost. Some of these low cost carriers may literally be here today and gone tomorrow. You need to do your due diligence on the quality of the carrier partners that are aligned with your freight brokers. You also need to do your due diligence on the intangibles, the brokers’ customer service and tracing capabilities.

Price

This is another test of a good freight broker. A low rate does not necessarily mean poor service. Quality brokers with a deep data base of carriers and deep market knowledge know where to go obtain capacity, service and competitive costs that allow them to offer competitive rates.

The good freight brokers fill an important niche in the transportation marketplace. They offer a valuable service that most shippers cannot perform on their own.

I would like to thank the readers of this blog for their positive feedback on last week’s posting and for their suggestions on other items to consider in selecting a freight broker. Here are some items that should be added to the list that was included in that blog.

Financial Stability

There are freight brokers of all shapes and sizes operating throughout North America. They can range from one or two person operations working out of their basements with a telephone line, fax machine and internet connection to multimillion dollar businesses. Size is not necessarily a determinant of a good freight broker although larger companies are more likely to have more support staff, a larger data base of carriers and better technology than some of their smaller competitors. However, financial stability should be a key element in your decision-making process. Financially stable companies are going to be more able to pay their carriers in a timely manner, less likely to haggle over claims and more likely to handle higher volumes of business without getting into a credit crunch. Most importantly, the more financially stable brokers are more likely to be around for a while.

Compliance & Regulatory Adherence

As Steve Luciano, VP or Procurement Services at Livingston International mentioned in his comment to last week’s blog, shippers must ensure that they have covered off any liabilities or exposures when utilizing a Freight Broker. They must ask questions like “does the freight broker utilize industry accepted Broker-Carrier contracts, Client-Broker contracts, and Co-Broker Agreements? How much freight will be double brokered? The shipper must ensure that the carriers utilized by the freight broker are compliant and have acceptable insurance coverage, DOT/MOT satisfactory safety ratings, WSIB coverage and a proven track record. “ Will you have the same insurance coverage if your load is stolen or damaged by your broker's carrier as compared to dealing directly with an asset based carrier?

Technology/Systems

Does the freight broker have an operating system to manage key areas of the business? The areas are Operations, Sales, Billing, Payables, Compliance and Fuel Surcharge. As Steve Luciano mentioned in his posting last week, “managing the Fuel Surcharge is the single most complex issue for Freight Brokers today.” Do your due diligence to find out the broker's IT platform and IT capabilities.

Quality and Availability of Staff

This manifests itself in several ways. Will your freight broker be able to provide your company with dedicated staff or are you dealing with a new person every day? How well do they understand the unique needs of your business? Are the broker’s people well trained? Can they handle a variety of services (e.g. over the road truck and intermodal) or will you get switched from one department to another? Are they proactive in dealing with potential service problems or do you only find out when your customer finds out?

With the two lists that have been compiled, you now have a fairly comprehensive set of criteria to select a freight broker. As a final suggestion, do some reference checks. Some brokers can put on a “good show” but cannot “deliver the goods.” While some brokers will give you selected customers to call, do your own due diligence. Shipper surveys and frank discussions with your trusted colleagues may be your best bet to get a true reading on the quality of a prospective freight broker.