At the recent Purchasing Management Association of Canada (PMAC) Conference in Quebec City, Kurt Ritcey, a Partner with Deloitte in Toronto, delivered an excellent presentation on how to gain executive support for a procurement exercise. Since his message is so relevant to shippers, I will attempt to adapt some of the key themes of his presentation to Transportation Managers who are contemplating launching a Freight RFP.

1. Enhance Executive Support

Many freight RFP’s ultimately result in changes - - new carriers with new dispatchers, new drivers and new customer service personnel. These changes can disrupt the status quo and have impacts throughout the organization. Since for hire truck drivers can be viewed as an extension of a manufacturer’s service, a change can unsettle existing patterns of interaction with customers. They can upset existing relationships with vendors. In other words, they can have far reaching effects in other functional areas of the company.

To maximize the success of your freight procurement undertaking, it pays to collaborate with your colleagues in other departments and obtain their buy-in and support. This can include identifying weaknesses among your current carrier base (e.g. service failures in certain locations, high freight costs that are adversely affecting margins and/or uncooperative customer service personnel who are difficult to deal with). By addressing the concerns of your fellow stakeholders and obtaining their buy-in, particularly at the executive level, you enhance the chances of gaining their acceptance when it comes time to implement the results of your bid process.

2. Stand on the Shoulders of Giants

In his presentation, Kurt emphasized the importance of being “organization savvy.” This includes being aware of the key decision-makers in your organization and the KPI’s that drive their decisions, aligning your work and your objectives with these key players, forming a working group with people who have a vested interest in the outcome and building a reliable delivery team to ensure that you are able to effectively achieve the desired outcomes when it comes time to implement your new routing guide.

3. Be an Evangelist

Since many freight procurement exercises result in change or the expectation of change, it is important to obtain and maintain executive support. This can include an employee video or even a letter from the President outlining his support for the undertaking. It is important to maintain this support since some employees may question the company’s commitment to change if there are no visible signs after the initial letter.

Kurt also recommended finding leaders in other sectors of the business who support the initiative and who are prepared to communicate this support in their respective functional areas. This clearly ties in with the notion of being organization “savvy.”

4. Escape Death Valley

I have personally seen companies execute freight RFP’s and then sit on the results, even though significant cost savings were available. To escape “death valley,” Kurt recommends developing the business case to demonstrate to the organization the financial and non-financial benefits of implementing the results of the freight procurement exercise. He also suggested a “Decouple and Accelerate” strategy. By this he means decoupling certain elements and executing them on their own to accelerate the implementation of the project. Kurt also proposed spending time on risk management by identifying those elements that can go wrong.

For freight RFP’s, this often means conducting meetings with the operations personnel in your new trucking firms to make sure the trailer drop, pick-up and delivery requirements are understood at the outset. Internally it means ensuring that company dispatchers are aware of the new routing guide and of the order in which carriers are to be selected. It may also mean communicating to management any load refusals or broken commitments that could result in less than optimum results and undermine the support from other departments.

Conducting a freight RFP exercise can take time, money and energy, both on the part of the company executing the bid process and on the part of the transport companies responding to the bid. Following Kurt’s suggestions can help you obtain the support of your executive and management team in both the execution of the RFP process and the subsequent implementation of the results.

There is lots of talk these days about green shoots and the possibility that we have may have hit the turning point in the recession. Let’s hope so. That is certainly the message I am hearing from a number of economists. Unfortunately, the unemployment numbers in Canada and the United States continue to rise. Over the past few weeks I have received another batch of e mails from experienced logistics professionals who have recently lost their jobs and are seeking employment.

These folks contact me looking for insights and direction on how to go about finding employment. While I don’t consider myself an expert on this topic, I find it interesting to listen to the folks who have successfully found employment in this difficult economy in order to learn some lessons that I can pass on to the readers of this blog. The good news is that unemployed logistics and transportation professionals are finding jobs. It is just taking a bit longer to find them.

As those of you know who follow this blog know, I have written on this subject before. My thinking continues to evolve and I will share some current thoughts with you.

1. Take a full Inventory of your Skills and Competencies

During this downturn, many long service people, who have worked with a very limited number of companies, in a very limited number of industries, are losing their jobs. This could be due to the outsourcing of certain supply chain functions to a 3PL or the consolidation of various plants or functions which result in redundant positions.

The tendency of a number of these people is to look for a similar position, in a similar industry in the same location. The fact is that there has been considerable consolidation in many industries. Trying to find a VP of Logistics position in the Retail Apparel, Food Services, Pulp and Paper or Chemical Industries, in the same geographic area, or even a different area, can be quite a challenge.

As a result, it is critical for many terminated people to take stock of their full range of skills and competencies. It may be helpful to develop this list in collaboration with a friend or colleague to identify skill sets that may be overlooked and underappreciated. This may lead to other career paths that are worthy of consideration.

2. Think Outside of your Current Industry and Business Segment

It is also helpful to think about other industries where these skills could apply. If an individual has worked in the manufacturing or retail sectors for a long time, have you taken a look at the full range of 3PL’s that specialize in these sectors? If someone has deep competencies in warehousing or project management, what about a career in consulting? The important thing is to look at the various permutations and combinations of your skill sets so you don’t apply blinders to your job search. These are difficult times. Re-entering the workforce may take a career shift, a salary adjustment and/or a change in location.

3. Focus on Leadership and Results

“C” suite executives are looking for leadership and results. If a company is going to invest in a new senior or middle management employee, at this point in time, that executive is going to be looking for someone with a record of proven results, for strong “take charge” skills and for someone who can replicate that success expeditiously in the new work environment. They are looking for people who are a “quick study,” who learn quickly, adapt to a new environment and make an impact.

4. Network to Gather Information and Secure Leads

Many jobs are not advertised in the newspapers or on job boards. In some cases, the jobs don’t even exist. They are created, if the right individual comes along. As a result, a job search should be focused on identifying leads and prospects, on finding people who know people who know people who may wish to hire a particular individual with just the right skill set. This may take a considerable amount of networking.

That is why it is critical to go through your personal and LinkedIn networks, to participate in industry associations, to attend conferences and to meet as many people as you can. These should be fact finding sessions. During these meetings or individual discussions, it is important to have an agenda with specific objectives. These objectives should include what is happening in those industries, who are the “movers” and “shakers,” and what might these people need. Another objective of the meeting is to walk away with at least 3 to 5 new, valued contacts with whom you can connect and meet (and obtain additional lists of contacts). This will maintain the momentum of your search and provide you with more inside information on industries and people. Make sure you are doing well less than fifty percent of the talking so you can listen carefully for every tidbit of wisdom that is offered. This will help you refine your search.

5. Speak the CEO’s Language

In line with item 4 above, a CEO or CFO is looking for a quick ROI, for immediate cost savings to more than offset the investment in the new manager, for revenue growth, for profit improvement and for a quick payback period. While having a full repertoire of people skills and communication skills is important, if not essential, a potential recruit must be able to speak the language of “C” suite executives and then deliver a fast and significant bottom line payoff.

With such a high percent of the working population of Canada and the United States is unemployed at this point in time, there are a large number of quality people looking for jobs. The competition is fierce. Crafting and executing a sound game plan can help you expedite the process of re-entering the workforce.

Share your Experiences with the Readers of this Blog

For those of you who have recently gone through this process, please take a few minutes to post a comment on this blog. Please outline any strategies that have helped you or your colleagues find employment. I am sure the readers of this blog would be very appreciative.

In this blog I will set out to look at three things. How did we get into this economic mess, what have been the impacts on freight transportation and where do we go from here? To prepare this blog I have relied on the input of a number of economists and industry analysts including a paper entitled “Solving the Overcapacity Problem: Trucking Industry Trends and Forecast, delivered by David G. Ross, Principal, Transportation & Logistics Group, Stifel Nicolaus & Company, Incorporated, at the SMC3 Summer Conference in Las Vegas on June 26, 2009.

The first half of 2009 was the culmination of a number of events that took place over the past three years. The bursting of the U.S. housing bubble coupled with the decline in auto sales in 2006 produced a freight recession that preceded the current economic recession. This began the contraction in trucking fleets to bring supply in line with demand. The worldwide credit crisis in September, 2008 led to a full-fledged recession. During the first six months of 2009, inbound shipments via ocean and air dropped dramatically. U.S. housing starts hit a 50-year low and auto sales were the weakest since the 81-82 recession.

With no more credit or home equity to use, consumer spending began to decline. Rising unemployment and decreasing consumer confidence further reduced demand. This encouraged companies to draw down existing inventories to limit manufacturing. This has resulted in major impacts on all sectors of transportation.

Less than Truckload

Revenue for the eight largest LTL carriers in the United States fell by an astonishing 25.6 percent during the first quarter of this year. This group includes YRC (National and Regional), Con-Way, ABF, FedEx Freight, UPS Freight, Vitran Freight, Old Dominion, Saia and UPS Freight. This sector has been losing market share for a decade. More recently, companies in this segment have been under attack from truckload carriers that have been targeting heavier weighted LTL shipments. It has also been hit by the transportation management companies and 3PL’s that have been combining LTL shipments into full and partial loads and moving this freight at reduced rates. A number of companies have reported heavy losses in this sector. Con-way has recently announced a new heavy LTL pricing strategy in an effort to retain and secure heavy LTL shipments.

An estimated eight percent of the LTL capacity has come out of the market. One expert has predicted another six percent reduction is required in order to bring supply in line with demand.

YRC remains one of the most discussed topics in transportation. This $7 - $8 billion giant controls an estimated 20 percent of the LTL market but has lost over $1.8 billion during the past nine quarters. A report from David Ross, at Stifel Nicolaus, indicated that second quarter volumes at YRC National were down 40 percent year-over-year. YRCW is struggling under a mountain of debt stemming from its 2003 purchase of long-haul rival Roadway Express and its 2005 purchase of regional LTL carrier USF Corp. Ross has estimated YRC has approximately $1.427 billion in total debt, including about $728.5 million owed to its consortium of banks. The question is whether its customers will remain on board and whether it can shrink its way to profitability through a combination of asset sales, terminal integration, teamster wage concessions and ongoing support from its banks. The departure of YRC would bring supply into line with demand and change the entire nature of the LTL industry.

Truckload

The truckload sector is better able to reduce capacity than its asset heavy LTL cousins and has shed an estimated eighteen percent over the past two years. As a result, it has fared better. However there is still excess capacity in this sector and shippers have been able to negotiate mid single digit rate decreases.

National truckload carriers have been targeting regional freight markets to retain revenues and improve profitability. As mentioned above, they have also been soliciting heavy LTL shipments to keep their trucks moving.

Cost conscious shippers have been migrating some of their truckload freight to intermodal transport. J.B. Hunt, historically one of the largest U.S. based truckload carriers, now gets less than twenty-five percent of its revenues from dry van transportation. Their growth has come from intermodal and dedicated contract carriage. The spike in fuel costs facilitated this trend and the expected increase in fuel costs as the recovery gains momentum is likely to move more freight in this direction. Intermodal volumes are expected to almost double between now and 2020.

Truckload capacity is one variable to watch. In 2006, 256,000 class 8 trucks were purchased. This year the number is projected to be as low as 75,000. This will keep capacity constrained. More than 35 percent of carriers responding to a recent survey indicated that they had parked trucks and almost 33 percent said they had sold trucks.

To retain and build market share, 10 of the 11 publicly traded U.S. based dry van truckload carriers also do brokerage business. Carriers are learning that they cannot meet all of the shippers’ needs in a profitable way. As a result, some carriers are focusing on lanes where there is density and using third party carriers on routes where they have less traffic.

Industry analysts expect the truckload sector to recover first. As inventories are depleted, manufacturing will begin again. This will move more truckload freight through the system. In addition, the stimulus programs will likely increase the amount of infrastructure freight being handled by truckload carriers.

Rail

The recession has caught up with the railroads as evidenced by declining volumes and layoff announcements. Weekly carload numbers for the class 1 railroads are in the range of 250,000 to 270,000, well below average. However, the railroads oligopoly pricing power allows them to perform better financially than their trucking colleagues. Citing a requirement to satisfy growth in future years, railroads are claiming that they are making the necessary investments in infrastructure. The rails argue that they need to keep their rates high so they can continue to recapitalize their fleets.

CSX was the first railroad to report on its second quarter financial results. Business volumes declined by 21 percent and revenues dropped by 24.8 percent. Intermodal volumes dipped by 12 percent while revenues declined by 24 percent. CSX was able to cut operating expenses, partly through right sizing its workforce.

Where do we go from here?

It is unlikely to expect any support from consumers over the balance of the year. Unemployment is likely to continue to rise. Those who are working are required to build their nest eggs since home sales remain difficult.

Shippers will continue to tighten inventory, cut freight tons and miles from their distribution networks, put their business out for bid and continue to obtain 5 – 10 percent rate reductions as supply and demand continue to remain out of balance.

Truckers are showing some optimism. Among the truckload carriers surveyed by Transport Capital Partners in March and April, 36.9 percent expect their freight volume to increase year/year in the next twelve months and 54.1 percent expect rates to rise. The ATA index increased 3.2 percent in May, its first year / year increase since February.

Bob Costello, ATA Chief Economist,recently made these comments. “I am hopeful that the worst is behind us, but I just don’t see anything on the economic horizon that suggests freight transportation is ready to explode...The consumer is still facing too many headwinds, including employment losses, tight credit, rising fuel prices and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term.” There are other headwinds including packaging consolidation, modal shifts and shrinking supply chains.

Bob also stated that “don’t be surprised if (trucking company) failures start rising again with fuel prices.” One can also expect less reluctance on the part of “creditors to liquidate debtors that are keeping struggling carriers alive.”

What will it take to succeed? According to Jim Allworth, Vice-Chair of the Investment Strategy Committee, we will be living in a world where “global GDP is growing at a measurably slower pace... We expect a much sharper distinction between ‘winners’ and ‘losers’ will continue to be drawn over this interval. At a minimum winning is likely to require the following corporate characteristics:

• A strong product or service offering that fits the environment and a well-conceived business plan to deliver the offering to the market;
• The ability to execute that plan on a sustained basis;
• The balance sheet strength to make the investments necessary to maintain a competitive advantage in a world where access to needed capital can’t be taken for granted; and
• The margin to be able to engage in what may be fierce competition over a sustained period.”

On July 20 Canada's Federal Government put up the cash to bring a publicly-owned bridge between Detroit and Windsor, Ontario, "one step closer" to fruition despite legal and lobbying challenges from the U.S. owner of the present Ambassador Bridge. The Canadian government announced it has bought 94 acres of land from the City of Windsor for US$30.6 million and is negotiating with individual residential and industrial landowners for 108 acres more, in order to build a new inspection plaza and Canada’s portion of the intended six-lane bridge. The planned new bridge is about two miles (3.2km) downstream from the Ambassador Bridge. The project includes some 15km (9 miles) of road that would provide a high quality direct connection between I-75 in Michigan and Highway 401 in Ontario. It is part of the Detroit River International Crossing (DRIC) project, a consortium of U.S. and Canadian agencies cooperating to build the bridge.

After years of dispute and controversy, the governments of the United States, Canada, Michigan and Ontario decided to build a replacement bridge for the 80-year-old Ambassador Bridge, owned by industrialist Manuel (Matty) Moroun of Grosse Point, Mich. They chose the site over the opposition of Moroun, who is trying to go ahead with his own construction of a six-lane twin span to the Ambassador, connecting the existing plazas of Detroit and Windsor.

Canadian and US officials have expressed frustration at delays at the Michigan Department of Transportation, which has been promising action within the year since 2005. Moroun started some construction work to build his new span without Canadian or American federal or state/province approvals, saying he does not legally need them.

Moroun has some Michigan and Detroit politicians, and advocacy groups, on his side. But the Michigan Department of Transport accuses him of construction without a permit, Detroit says what he is doing encroaches on city land, and the U.S. government through the Coast Guard has frozen earlier environmental approvals. Canada has turned thumbs down on the Moroun plan in favour of the proposed new bridge which would take cross-border traffic away from congested downtown Windsor.

Sixty percent of US-Canadian truck traffic is over the three Detroit area crossings - Ambassador Bridge, Detroit Windsor Tunnel, Blue Water Bridge. About 50% of the truck traffic is locally generated. The bulk of the passenger traffic - about three quarters - is local, that is people in the Detroit and Windsor areas interacting via jobs, shopping, recreation just across the river. Ninety percent of the passenger traffic originates or is destined locally. Long distance travelers are less than 10%.

The Blue Water Bridge that links Port Huron, Michigan to Sarnia, Ontario is 90km (55mi) from Detroit and is more circuitous for traffic with origins or destinations to the south. But it has full expressway approaches on either side and quicker border clearance plazas and is competitive for long distance traffic. This has been a popular route for traffic destined to or arriving from Chicago and the midwest United States. The Detroit - Windsor Tunnel is 3km (1.8mi) upstream northeast of the Ambassador bridge.

Canada plans a 139-acre inspection plaza, which it says would be "one of the largest in North America," with 29 lanes including 13 for trucks only and six more for cars or trucks as traffic demands. There would be nine toll booths and secondary parking for more than 100 trucks at a time. The other 63 acres would be for the Canadian portion of the bridge across the Detroit River.