The potential benefits of intermodal transportation have been recognized for years. However, for many shippers, intermodal transportation has been viewed as a niche service. It is an attractive option for truckloads moving 1000 miles or more that are not service sensitive. For short and medium length of haul movements, where speed to market is a requirement, over the road truckload is the preferred option.

There are several forces at play that are suggesting that intermodal transportation is about to make the leap to prime time. One major impetus for change came from a book published in 2006, written by Rahm Emanuel and Bruce Reed, entitled “The Plan – Big Ideas for America.” Emanuel who is now White House Chief of Staff and Reed who is CEO of the Democratic Leadership Council, wrote then that “railroads are a highly efficient way to move people and goods.” Shifting 25 percent of freight from trucks to rail “would save 15 billion gallons a year” of fuel. It would also reduce commuting time and relieve congestion on America’s highways.

The Obama Administration is championing this recommendation by forming a national freight transportation policy that has as its mission to take more trucks off the road. Deputy Transportation Secretary John Pocari elaborated on this policy at a March 24 Senate Environment and Public Works Committee hearing where he stated that “we want to keep goods movement on water as long as possible and then on rail as long as possible and truck it for the last miles.”

Certainly another factor that is helping the intermodal cause is the current state of America’s economy and more specifically, the potential magnitude of the U.S. debt. Huge budget deficits may limit the funds available for investment in road infrastructure. At the same time, shippers trying to restrain their expenditures on freight transportation should also serve to boost the demand for intermodal service.

The fuel cost spikes in 2008 caused a number of major truckload carriers to re-evaluate their business models and trucking networks. While J.B. Hunt has been the leader in migrating their long haul business to intermodal and shrinking their over the road truckload business to the short haul and dedicated business segments, other leading carriers such as Schneider and Heartland Express have followed Hunt’s lead.

On a going forward basis, fuel prices will need to be closely watched. As of today’s writing, the economic debt problems in Greece and potential problems in other European countries have driven down the price of a barrel of oil to $75. Some folks are questioning if these problems may trigger a worldwide economic retreat. On the other side, one leading Canadian economist, Jeff Rubin, is forecasting the price of oil to rise to $150 a barrel by year end 2010 and $200 a barrel by the end of 2011. We will have to wait and see how the events of the past few days, including the Gulf oil leak, will play out in the future cost of oil. Nevertheless, any future spike in oil costs (and fuel surcharges) could trigger an upsurge in demand for intermodal service.

Another driver for intermodal growth is that an increasing number of carriers see intermodal's length of haul shortening considerably, especially in the Eastern USA, as Norfolk Southern and CSX build the infrastructure needed to haul intermodal freight economically in the 500- to 800-mile range. "In the East we're seeing more intermodal opportunities for what would typically be considered short haul," said Chad Thomas, director of intermodal at J.B. Hunt Transport Services. "There are significant highway conversion opportunities for shippers in that market," Thomas said.

This strategy is now moving beyond the key truckload players. LTL trucking company FedEx Freight, which has pointedly rejected rail transport in the past, could switch and turn to intermodal in coming years if the price is right and customers want the option. The transportation industry is changing rapidly, and carriers must also be ready to change, Bill Logue, president of FedEx Freight, told shippers at the NASSTRAC annual meeting this week in Orlando, Fla. "Customers want options," said Logue, president of FedEx Freight.

The less-than-truckload sister company of FedEx Express has characterized rail transport as inefficient and unwieldy for what it terms “fast-cycle logistics,” delivering freight next-day or second day up to 800 miles. The stance has put FedEx Freight on the opposite side of UPS, which has long been one of the largest customers in the rail industry for the longer linehaul portions of its domestic parcel network. Logue says he isn't ready to drive freight toward intermodal yards. "We find in most cases the railroads still have a transit time issue," he said. "But five years down the road, intermodal may be much more significant. As international globalization continues, the dynamics will change, and there will be an opportunity for more rail," Logue said.

Averitt Express, another large LTL player, is now providing intermodal services as part of its full-load/volume transportation services package. Averitt's Executive Vice President of Sales and Marketing Phil Pierce says Averitt's foray into the intermodal arena is a result of market conditions and customer feedback. "Working with a single provider who can handle multiple facets of your shipping saves you time, money and headaches," said Pierce. Averitt can bundle our intermodal services together with our LTL, truckload, international ocean/air, warehousing, PortSide® and leading-edge transportation management technology to bring shippers the ultimate value for their transportation dollar. Very few providers in the industry can do that. . . Our LTL distribution network and our 1,500 unit over-the-road fleet help us provide customers with operational and pricing flexibility they can't get anywhere else. We can react more quickly than other intermodal providers to sudden shifts — even with shipments already en route.”

This begs the question of what share of the transportation pie can intermodal service expect to garner in the years ahead. The trucker’s view is that highways are the most expeditious way of moving freight in North America and will likely continue to garner 70 percent of North America’s freight movements. Will intermodal be able to build on its base of long haul movements and gain market share in the mid range markets (500 to 800 miles) over time? The combination of rail service improvements, particularly in relatively untapped mid range eastern markets, the shift by national truckload carriers to more regional truckload business models, the potential increase in LTL linehaul traffic, a possible upward movement in fuel costs, government policy initiatives and customer demand for more cost effective transportation should allow intermodal service to make some strong single digit market share gains in the years ahead.

As consultants, we typically are given the opportunity to speak with a number of individuals at various levels in our clients’ organizations. As part of our fact finding, we engage in some very candid discussions with a number of our clients’ key employees.

The conversations that have taken place so far this year have opened my eyes to some worrisome trends that I will share with the readers of this blog. During the recession, many companies cut staff. The work was spread over a smaller employee base. While business volumes have declined in many manufacturers, distributors and transportation companies, the basic work elements did not disappear. They may have declined slightly but the key tasks are still there.

The consequences of these staff cuts are quite apparent. The remaining employees are being asked to work harder and to work longer hours. The good news is that they did not get a pink slip; the bad news is that many have “layoff survivor syndrome.” This means they have more responsibility, more work and more stress. They stay later at work and make sure they wave good bye to their bosses to let them know that they are working late. They eat lunch at their desks to pick up some work time. For those employees who supervise others, they have less time to support their team since they often have more people to supervise than they had before and their workloads have increased.

Inevitably, this will result in medical related issues as these employees cut back on essential exercise, eat more junk food and worry as to whether they will be part of the next wave of job cuts. This will have consequences for their subordinates as well. Less interaction with their supervisors will result in more insecurity and more worries.

Increasing numbers of employees are experiencing emotional and physical burnout. The results from the Q-GAP health survey administered to 26,000 Canadians have indicated that the most common symptoms of overwork and stress are joint pain, stiffness and muscle aches, all musculoskeletal problems. Many also feel unhappy or frustrated with their family members and partners, a likely consequence of an unhealthy work-life balance.

There are many books and articles published on the subject of how to launch and maintain a healthy diet and exercise program. These can easily be ordered online or from a leading bookstore. What I observe are possible changes in work processes that can go a long way towards easing workloads and relieving stress. Here are few that I have seen.

Most employees now work with computers that come equipped with Microsoft Office. For many employees, basic training in how to use WORD or EXCEL would go a long way towards making these employees more productive and efficient. This is a very inexpensive way to improve productivity and morale.

I continue to be amazed at how many companies enter and re-enter the same data on a daily basis. Certain reports are printed each day and used as source documents for other reports with certain basic fields such as customer profile data entered over and over again.

My suggestion is to look at what your employees do every day. Make a determination as to the most important tasks and the relative time consumed each day in performing these repetitive tasks. Engage your IT resources to automate the most time consuming high volume tasks. This will enhance the morale of your employees by providing them with more mentally stimulating work and by allowing them to be more productive.

Don’t overload your employees with weekend work, with weekend conference calls and with weekend e mails. Allow your employees to have some down time. Encourage them to engage in healthy workouts and eat healthy foods. Subsidize their participation in fitness clubs that allow them to enjoy a mental health break.

As business volumes increase, hire the resources you need to run your business effectively and provide them with proper training. There are many good people who are currently unemployed or underemployed. Take advantage of this unique opportunity to selectively strengthen your team where you are thin in resources and where your people are overworked.

A company’s employees are its most important asset. As a business owner or leader, your employees should be encouraged to live a healthy lifestyle. A healthier workforce will be a more productive workforce that can provide your company with a competitive edge.

With the financial problems in Europe, the world stock markets in freefall and the gulf oil spill, it makes one wonder if we are heading into a double dip recession. Despite these troubling events, there is enough positive news to suggest that we in the midst of an economic recovery.

GDP is on the rise this year. Consumer spending is inching up and manufacturing gains continue – as evidenced by the most recent Institute for Supply Management PMI index coming in at 60.4 percent, showing growth for the ninth straight month. The U. S. Commerce Department's recent report indicated that factory orders were up 1.3 percent in March (and up 4.7 percent year-to-date). Clearly there needs to be sustained growth for multiple quarters to declare that the economies of the United States and Canada are on solid footing. But at the same time economic conditions and key indices continue to move in the right direction.

A variety of transportation indices are also in positive territory. The ATA Tonnage Index, the Rail Traffic index and the Cass Freight Index are all showing positive year / year trends. The spot market for North American truckloads increased 291 percent in April compared to the same period a year ago, according to a freight index published by the transportation trend analysis firm TransCore. The index is based on the millions of truckloads and available trucks in TransCore’s DAT Network that is fed its information from shippers, third partly logistics firms and carriers throughout North America. April’s spot market volume was the highest for any month since November 2005, a record year for spot market freight.

ATA Chief Economist Bob Costello said in a recent statement that he is getting more optimistic about the motor carrier industry's recovery. "Freight is moving in the right direction and I continue to hear from motor carriers that both the demand and supply situations are steadily improving," he said, adding that this growth is due in part to the growing economy and to a slight inventory build after some sectors slashed inventories by too much in 2009. "For most fleets, freight volumes feel better than reported tonnage because the supply situation, particularly in the truckload sector, is turning quickly."

These events beg a few questions. Will the growth in demand, coupled with reduced capacity, translate into higher rates and how quickly will freight rates return to pre-recession levels?

Truckload volumes and rates started to decline in late 2007 and throughout 2008, then took a nose dive as the Great Recession took hold with the financial collapse in fall of 2008, with many carriers pricing during 2009 at or below their variable operating costs. While things have modestly stabilized, shippers are still driving hard bargains in contract rate negotiations, even as the economy recovers, with the supply and demand equation likely to stay strongly in the favour of shippers into 2012. This is the view of John Larkin, the respected transportation industry analyst at Stifel Nicolaus, based on a variety of recent conversations with shippers and carriers.

Larkin sees the following current market dynamics at play. The continued increases in the sophistication of shipper bidding techniques and technologies are still yielding meaningful rate reductions. Contract truckload rates will probably not move up until 2011, at the earliest, and that will simply reflect underlying carrier cost increases. While there is likely to be some modest rates increases in 2011, those will simply reflect increases in driver pay and costs associated with 2010 (and beyond) EPA compliant engines. The implication is that significant truckload rate increases likely will not occur until 2012, Larkin says.

Capacity is tight, however, in certain geographic sectors of the US. “Capacity tightness has been "bouncing around" from one geographic region to another and has not been homogeneous across the US,” according to Larkin.

Shippers keep knocking down “pockets” of exceptionally high rates that have existed for years. Larkin says one carrier he spoke to cited a large East coast shipper that recently was able to knock down rates by 30-35%. “This phenomenon has been particularly noticeable in lanes historically viewed as backhaul lanes,” Larkin says. “With backhaul lane pricing under pressure, carriers must endeavour to price headhaul lanes adequately, in effect to make up the difference. This would seem to be "easier said than done” in this environment, however.

Some customers are again willing to pay for expedited/high service capabilities. In markets such as the auto assembly markets, “shippers are now willing to consider rate increases in exchange for expedited, time-definite truckload services (especially when driver teams are involved),” Larkin says.

IHS Global Insights analyst Charles Clowdis has a slightly different view, saying rates may in fact rise more rapidly and quickly than many current projections. Clowdis believes that the number of carriers and owner-operators that have left the market has decreased total available US trucking capacity to the point where continued economic growth could lead to constrained capacity in the fairly near term, and therefore push rates sharply higher. “Many carriers, both truck load and less-than truck load, have not replaced their fleets on a schedule that puts the most fuel-efficient equipment requiring less maintenance into service,” meaning fewer trucks will be available on any given day.

Overall, Clowdis predicts TL and LTL rate hikes in the 7-10% range, “as capacity decreases and becomes more valuable to serve the released consumer demand.” Of course, even rate hikes in those ranges would still leave shipping costs well below rates in 2007, but from a current year perspective, if Clowdis is accurate, it could lead to sharp year-over-year cost increases that could affect a shipper’s bottom line and ability to meet transportation budgets.

My own view is that freight rates will begin to migrate upward but less quickly that what is predicted by Mr. Clowdis. There is still too much capacity in the LTL sector for rates to increase in a meaningful way. More capacity reductions, industry consolidation and growth in demand is required for any significant upturn in LTL rates. Even in the truckload sector, with some exceptions, there will be a steady but bumpy upward movement in freight rates as supply and demand remain in reasonable balance. Freight rates are on the rise but it will take some time to return to pre-recession levels.

The second annual Shipper Conference, co-hosted by Canadian Transportation & Logistics and Dan Goodwill & Associates, is scheduled for June 16 at the Airport Marriott Hotel in Toronto. The theme of this year’s conference is “Managing your Freight Program during a Resetting Economy.” This year’s event will address a broad range of topics of interest to many Canadian shippers.

The conference will again be kicked off my Carlos Gomes, Senior Economist at Scotiabank. Carlos will outline a number of the variables his company is tracking in today’s resetting economy. He will also specifically highlight a number of transportation sector key indicators and draw out their significance to shippers. In addition, he will provide his forecast as to where his company sees the economy going over the balance of the year.

Lou Smyrlis, editor of Canadian Transportation & Logistics, will provide a summary of the results of his magazine’s annual shipper survey. Lou will specifically highlight shipper expectations as they pertain to mode utilization, mode shifting and shipper freight rate expectations.

The conference will then feature a series of speakers who address both domestic and international freight issues. Laurie Turnbull, Supply Chain Consultant, Cole Group, will provide his insights into the state of ocean and air freight shipping. Laurie will be followed by Gary Breininger, of Breininger & Associates. Gary will share with the audience his thoughts on the state of the small parcel market. I will follow Gary and provide some observations on the current state of the LTL and truckload freight markets. Specifically I will look at such issues as capacity and freight rates and provide some strategies for managing a freight program in 2010.

The morning session will conclude with one of the most eagerly awaited segments of the day, a shipper panel that will be moderated by Lou Smyrlis. Lou will engage a group of leading shippers in a dialogue on their companies’ strategies with respect to freight transportation. Immediately after lunch, Lou will lead a discussion with a panel of carrier executives on what they are planning to do to respond to the needs of shippers in 2010. Immediately after the two panels, Carol West, the President of the Canadian Society of Customs Brokers, will provide everyone with an overview of current issues in the field of customs clearance.

As a result of the economic downturn in late 2008 and 2009, many manufacturers and distributors had a mandate to reduce supply chain costs. There are a number of companies that are still in this mode. Toby Brzoznowski, Executive Vice President, Sales and Marketing, LLamasoft, Inc., will look at ways of reducing freight costs through network optimization. The formal presentations will conclude with a presentation from Jim Papineau, Director of Supply Chain Systems & Automation, Dan Goodwill & Associates Inc., who will provide the attendees with an overview of the results of a recently completed survey looking at transportation management software systems.

The final segment of the day will include some small roundtable discussions on four of the major topics discussed during the day, freight management and procurement, network optimization, ocean and air freight shipping and TMS systems. Each group will be facilitated by one of the speakers who made a presentation earlier in the day. At the end of the day, there will be opportunities for everyone to network and engage in one-on-one discussions with the attendees and speakers. There is still time to register for the event. To do so, go to www.dantranscon.com. I hope to see you there.