NASCO (North American Super Corridor Coalition), a group that represents the interests of Canada, the United States and Mexico in improving commerce through the industrial heartland of America, held its annual conference in Quebec City this past week. As a first time attendee, it was a very interesting experience.

Representatives from industry and government, from the three member countries, came together to discuss methods of facilitating the movement of goods between the three countries. While there was a range of presentations (all translated into English, French and Spanish) from government officials, including Premier Jean Charest of Quebec and industry leaders, including manufacturers, technology providers and transportation companies, there was one presentation that stood out. Entitled “Real people, real business, real scenarios,” this track focused on the “perspectives of people that are using and doing business on North American Corridors: sharing realities, challengers and what could be improved.”

Rene Lalande, Vice President, Mexico Business Unit, Bombardier, outlined that his company, founded in La Pocatiere, Quebec, now operates in 60 countries. He noted that Bombardier has suppliers all over North America. He identified the various cultural, language, and regulatory hurdles and the lack of integrated infrastructure that are impediments to the free flow of goods across North American. He contrasted this with the European model. He highlighted five changes that are needed to facilitate commerce across this corridor. They are:

1. Simplify customs processes.

Mr. Lalande cited the example of European Economic Union and highlighted the ease with which goods flow from one European country to another. He indicated that our complex processes are a competitive detriment.

2. Streamline Regulations

Mr. Lalande indicated that five different permits are required to transport goods between various Mexican states. He emphasized that there is a need to harmonize and streamline regulations with respect to the movement of goods between, provinces, states and countries. There was also mention of the ongoing dispute between Mexico and the United States with respect to Mexican trucks and drivers being allowed to drive into the heartland of the United States.

3. Create two different rail systems

Again Mr. Lalande focused on the European model where there are separate rail networks for freight and passenger travel. This message was reinforced in other presentations that identified the significant congestion that is occurring in various locations across North America. It is his belief that we should be establishing separate rail networks for freight and passenger travel.

4. Develop the Rail System

5. Go “Glocal”

The message here was that it is necessary to think and operate globally but focus on building your business in the local markets that you serve.

This message was picked up in the presentation given by Yvan Morin, President, Industries Mailhot Inc. Mr. Morin spoke of his company’s humble beginnings. Industries Mailhot started as a small Quebec business. He traced his company’s growth, outlining how his company expanded to Ontario, the closest and easiest market to penetrate. In 1993 he opened a U.S. division and started exporting to that market. He then told the story of how in 1993, two Mexicans knocked on his door asking him if he would be interested in doing business in that country. Mr. Morin referred to this as an “adventure” for his small company. He began selling his products in Mexico and shipping them by truck as fast as possible.

As the peso was devalued, Mr. Morin went to Mexico and met his client. This led him to the realization that Mexico had qualified people; Industries Mailhots had the technology. Mr. Morin saw establishing a factory in Mexico as a way of creating wealth for both countries. These discussions led to the building of a 100,000 square foot factory in Mexico that now employs 100 people. In other words, Industries Mailhots went “glocal” in Mexico. Mr. Morin advised the audience that this initiative led to new business in Chile, Brazil, Peru, Columbia and Ecuador. To be successful, "we need the support of governments," he stated.

The final speaker was Mark Stiles, Senior Vice President of Trinity Industries in Texas. Trinity is a large manufacturer of rail cars. Mr. Stiles made the point that the three countries can figure out what needs to be done to facilitate trade. “We need to keep the three governments out of it.” I am not sure how realistic this suggestion is.

Nevertheless, it is clear from the attendance at the conference, from the presentations at the various tracks and from the comments from these speakers that there is a need to make the North American Super Corridor far more fluid and efficient. This is a great conference to attend if you are looking at creating business partnerships with companies in other NAFTA countries and if you are seeking to build your business along the major trade corridors of North America.

Winnipeg, Manitoba is located in the middle of Canada, many miles from the Atlantic and Pacific oceans and a considerable distance from the Great Lakes. However the city plays an important role in both East-West and North South trade. It serves as a natural connection point between Atlantic shipping lanes and the Asia Pacific Gateway and as the northern terminus of the fast-growing mid-continent trade corridor that runs from Churchill, Manitoba in the north through Chicago, Kansas City, and Dallas all the way to the southern tip of Mexico.

Manitoba’s trade with its NAFTA partners continued to grow in 2008. Trade with Mexico grew to $676 million, up from $436 million in 2004, while trade with the U.S. increased to $21.33 billion, up from $15.38 billion in 2004. Canada’s trilateral trade also continues to increase. Trade with the U.S. grew to $580 billion in 2008, up from $535 billion in 2004, while trade with Mexico rose to $23 billion in 2008, up from $16.4 billion in 2004.

A new job-creating investment contained in the Harper Government’s Economic Action Plan is designed to build an "inland port" around Winnipeg's James Armstrong Richardson International Airport. The port is intended to take advantage of the city's proximity to the geographic centre of North America. The governments of Canada and Manitoba are jointly funding the next phase of this project that will result in the creation of a corporation to oversee the "port", and to fast track "investment and economic development decisions based upon a single, comprehensive transportation, infrastructure and land-use plan" for approximately 20,000 acres of land around the airport.

Canadian Prime Minister Stephen Harper and Manitoba Premier Gary Doer recently announced that they will spend more than $212 million to build CentrePort Canada Way, which is a four-lane divided expressway linking the 20,000-acre inland port to the Perimeter Highway. A portion of the $175 million that Canada is providing to Manitoba under the Provincial-Territorial Base Fund will be allocated to this initiative, which has a total eligible cost of $136.7 million. The initial phases of the CentrePort Canada initiative also received federal funding, including the twinning of Inkster Boulevard ($33.25 million federal contribution). Under the Building Canada Plan, the Government of Canada is providing more than $853 million for infrastructure improvements in Manitoba. The federal and provincial governments announced earlier this year that Manitoba communities would benefit from more than $123 million in infrastructure investments under the Communities Component of the Building Canada Fund. Federal and provincial contributions for this investment total $82 million and the communities will provide the remainder of the funding.

CentrePort Canada is centrally and strategically located at the heart of North America to connect businesses to world markets. Three major railways, CN, CP and the BNSF all come to Winnipeg. Five of the country’s largest truckers have offices in the city. Winnipeg also boats a 24/7 cargo airport that is open year round. This inland port will offer access via road, air and rail to all corners of North America. The CentrePort Canada initiative involves using the James Armstrong Richardson International Airport and surrounding land as a hub to import goods from Asia and Europe and then distributing those goods throughout North America.

The selling point for CentrePort Canada has been location, location, location. The changing seascape in the Arctic has opened the opportunity to shorten shipping routes, open new trade avenues for Manitoba and Canada with international partners through Canada's only major international Arctic Seaport at the Port of Churchill. The "Arctic Bridge" as its being called connects with the Port of Murmansk, Russia, allowing for trade opportunities that were unavailable only years ago. Further development will also lead to increased commerce opportunities for those communities located in the both Arctic regions. Further development of the marine link between Russia and Manitoba is being planned from establishing working groups, doing test flights and shipments, and continuing to improve communications amongst all industry stakeholders.

Various market indicators appear to suggest that we may be at the bottom or approaching the bottom of the current recession. This was clearly the message communicated by Carlos Gomes, Senior Economist for Scotiabank at this week’s Shipper Workshop co-hosted by Dan Goodwill & Associates and Canadian Transportation & Logistics. As a result this is an opportune time for shippers to take a look at their carrier base. Here is why.

The economic downturn has created a situation where carriers have had a difficult time reducing capacity in line with the drop in freight volumes. This has produced a period of very active rate cutting by carriers. Many shippers have taken advantage of the situation by conducting a freight RFP exercise. Some shippers have replaced some of their core carriers to capitalize on the cost savings.

One of the paradoxes of the current recession is not how many carriers have gone out of business but how few, particularly how few medium and large size freight companies. While many freight companies have experienced volume reductions of anywhere from 10 to 30 percent, or more, most of these companies are still in business. Certainly many freight companies have made the necessary cost reductions, through a combination of staff cuts, expense reductions and the parking of equipment, to bring their cost base in line with the decline in volumes. But this is not the case for all carriers.

Some trucking companies are remaining in business because their lenders are allowing them to continue. Since there is currently a limited market for used trucking equipment and freight terminals, foreclosing on a freight company would leave the lender with assets that are not easy to sell at this time. This situation will not last forever.

As the economy rebounds, some banks and other financial institutions are likely to say “enough is enough.” They will be expecting repayment of their loans and will begin to find a market for trucking company assets. It is likely to expect that as the recession comes to an end, there will be a number of trucking companies that will not be able to survive.

This was certainly the message communicated by some leading carriers that participated in a panel discussion at this week’s conference. There are a number of prospectus documents being distributed throughout the industry by carriers seeking an exit strategy. The expectation is that certain carriers may not be able to make a graceful exit.

As a shipper, it is important to ensure that your company’s supply chain is not jeopardized by having a significant volume of your freight loaded on the trailers of companies that face bankruptcy. What can you do to protect your company? A lot. Here is a list of suggestions.

Telltale Signs of a Carrier in Trouble

Be on the lookout for telltale signs of a trucking company in trouble. These signs can include:

- Overzealous sales people selling unsustainable rates
- Carriers promising that they can go anywhere and do anything you ask
- Carriers failing to meet service commitments
- Carriers consistently not having the capacity to service your account
- Excessive claims

Perform Due Diligence on your Prospective Carrier Partners

During these unusual times, it is important to perform due diligence on your prospective carrier partners. As you go through an RFP exercise, it is worthwhile to do some probing in these areas.

1. Find out if the carrier has experience in handling your type of freight. Ask for the names of other shippers in your area for whom they move the same type of freight.

2. Check out the size of their fleet and their major lanes to make sure your company is not part of a carrier’s market expansion test. Verify that they have the quantity and quality of equipment to do the job.

3. Ask for references and check them out. When I have called a carrier’s references, I have found their customers to be quite forthcoming and honest about what the carrier does well and not so well.

4. Ask for their current safety rating (e.g. CVOR rating in Canada, Federal Motor Carrier Safety Administration rating in the U.S.). This document can provide hints about the quality of their equipment and how well they keep it maintained. It can also provide some insights into the quality of their drivers and how well they are trained. This rating can be an important telltale sign that a freight company is trying to extend the life of their equipment beyond what is safe. Your company’s freight can be put at risk.

5. Check their “Dun and Bradstreet” rating. This will provide you with one independent reading of their financial health.

6. If you are still unsure, ask them to provide you with a letter from their bank manager on their current financial situation. You won’t win any popularity contest with your carriers but it can provide you with valuable insights into the financial health of your prospective business partners.

Employ Risk Mitigation Strategies

To further protect your company, employ these strategies to minimize risk.

- Maintain a robust routing guide

- Ensure your company has quality backup carriers on every lane.

- Provide your backup carriers with freight so they will be willing to help you if your primary carrier goes down

There is no doubt that these tasks may require some extra work at a time when you and your team may be short staffed and overworked. On the other hand, a failure to perform these tasks could result in serious consequences for your supply chain, possibly in the not too distant future.

LTL pricing has always been of particular interest to me. When I began my career in the LTL industry in 1982 with TNT Overland Express , one of my first projects was to lead the marketing of their “Flexrate” pricing program. This initiative was designed to provide shippers with a “multiple shipment discount” or incentive if they provided a larger percentage of their freight to Overland Express. While this produced a short term spike in revenues, this pricing program was matched by the other carriers with similar multi shipment incentives. The net result is that within a few months, all carriers returned to their previous pricing programs.

Until recently, LTL pricing has not been a bastion of innovation. For many years, U.S. based carriers have used the complex National Motor Freight Classification System (NMFC) and have provided discounts off the various class rates. Each rate class (e.g. 60, 85, 92.5, 100 etc.) is tied to a well established set of variables (e.g. density, stackability, packaging etc.). In Canada, discounted class rates have been used on cross-border freight and commodity rates have been prevalent on doemstic LTL shipments for many years. In the case of the latter, carriers create product specific rates for particular types of freight.

Over time, some new pricing programs have been put in place. They include pallet pricing, where the carrier charges a rate per pallet that is tied to density and space occupied. Multi pallet shipments are rated either on a per pallet basis or as quarter loads, half loads and full loads depending on the volume of freight. To siphon off the lower weighted shipments, the courier companies have offered hundredweight pricing programs to attract market share from LTL carriers.

In recent years, two hybrid pricing approaches have been gaining some interest, “Cube Based Pricing” (see my Oct. 1, 2007 blog) and “Density Based Pricing.” In each case, these programs focus on dimensional weight measurements, cubic space occupied and distance to compute shipping costs. Density is computed by dividing the weight of the item by its dimensions (length, width and height). The typical units of measurement are pounds per cubic foot and kilograms per cubic meter. The supporters of these approaches argue that these pricing methodologies bring LTL pricing more in alignment with the actual cost of moving freight and also place them more in line with international freight shipping pricing methodologies. For shippers using load optimization software, these pricing approaches allow for better planning and cost savings. Cube and density based rates can be used as pallet pricing by relating the cube and weight components. Both of these LTL pricing initiatives are a “work in progress” since there is such widespread utilization of the existing class rate system and so much resistance to change.

With the current economic downturn, the “heavy” end of the LTL freight spectrum has come under attack. To fill trucks, truckload carriers have been attacking the “heavy LTL” segment of the LTL market. To fight back, Con-Way has introduced “True LTL Pricing.” The company is capping rates on heavy LTL shipments - - shipments that fall between 2,000 and 5,000 pounds - - at prices that will not exceed truckload pricing. To simplify the pricing scheme, the company is using a rate formula applied in truckload pricing and removing some accessorial charges. The company is also offering guaranteed delivery with the assurance that these rates will never exceed truckload rates.

Con-Way found that shippers begin looking at truckload pricing when an LTL shipment hits as little as 2,000 pounds and they will consolidate freight and hold it in inventory in order to create a full load. Truckload carriers and 3PL’s have been dipping into the LTL pool as demand for full truckload shipments has declined and additional truck capacity has become available. This move by Con-Way comes on the heels of its decision to merge its three LTL divisions into one unit and the closure of 43 terminals in its 343 terminal network.

If history is a guide, this move is likely to precipitate action from Con-Way’s competitors similar to what took place back in the early 80’s with the multi shipment discount programs. With heavy LTL freight representing somewhere between 10 and 15 percent of the total LTL freight spend, watch for other carriers to follow Con-way’s lead.