In the “good old days” of freight transportation, it was easy to stratify the industry into a few simple categories. There were LTL carriers, truckload carriers and freight brokers. In addition, there were some specialized segments that included refrigerated transport and heavy haul carriers.

In many trade publications and transport guides, you can still find lists of the top 100 for hire trucking companies, the top 100 private fleets, the top 100 freight forwarders and the top 100 logistics services providers. As you examine these lists, it is apparent that the labels used in the 80’s and 90’s don’t work very well in the year 2010.

Many LTL carriers have truckload and freight brokerage divisions. Some companies limit themselves to Canadian or U.S. operations while others provide coverage of North America. Some offer international services that are becoming increasingly important as businesses expand the geographical scope of their supply chains and customers.

Certain transportation service providers offer only over the road services while others have multi-modal (intermodal, truck and sometimes ship and air) capabilities. A large block of companies are asset-based (supply their own tractors and trailers) while others (non-asset based) utilize other companies truck and/or rail resources. Some companies provide strictly transportation services while others offer a more complete portfolio of logistics services (e.g. warehousing, inventory management, replenishment, fleet management).

There are specific companies that are or aspire to be truly national or international enterprises while others are happy to remain niche players, specializing in regional LTL markets, local drayage or particular segments of the industry where they are able to provide some differentiation and value.

This suggests that it is time for the leading freight transportation trade magazines to capture and present their profiles of the leading players in a more user friendly, focused and meaningful way. Here are some suggestions.

1. Complete Portfolio Transportation Service Providers

Full service companies offer at least North American transportation services – LTL and Truckload. They can serve all 48 states and provinces/territories of Canada with a credible LTL and truckload service. While their company-owned trucks may not go to every city and town, they can, through their logistics operations and partners, offer truly North American solutions.

They also offer multi modal services, at least truck and rail and possibly other modes. Some have small parcel operations or specialized hauling in addition to their LTL and regular over the road truckload businesses.

2. International Complete Portfolio Transportation Service Providers

The elite Complete Portfolio Service Providers also offer a range of international services. Again, through assets and partnerships they are able to link a North American pick up and delivery network with an array of internal markets. The top industry players are heading in this direction. They can provide truly one stop shopping. The remaining companies fall into several groups.

3. Geographic / Service Specific Specialists

These companies, through their regional terminal network and/or limited geographic range, can provide coverage of specific markets. These players can be segregated as follows:

Southeast USA Coverage
Northeast USA Coverage
Southwest USA Coverage
Northeast USA Coverage
Atlantic Canada Coverage
Ontario Coverage
Quebec Coverage
Western Canada Coverage
South America Coverage
Europe Coverage
Asia Coverage
Africa Coverage

Within each of these markets you find companies that have multiple or limited service portfolios. By utilizing a set of geographic and service categories, shippers seeking to conduct an RFP exercize or select new service providers, could easily locate a set of companies that can match up against their geographic and service requirements.

4. Shipping Lines and Marine Agents

These companies provide assets or can book space on assets to move freight destined for overseas markets. Again, they need to be organized on a geographical basis to allow for easy identification and selection.

5. Niche Players

Transportation Guides should allow shippers to quickly find the key players in various specific segments and niche markets, sorted by geographic coverage: These sectors include:

Heavy haul
Refrigerated transport
Tanker carriers
Local cartage/Local drayage
Freight forwarders

6. Logistics Service Providers

These companies need to be sorted on the basis of:

• The range of services they are able to offer,
• the industries they service,
• size and
• their technology.

Trade publications that contain similar classifications would save shippers time in having to Google for potential carriers. If these transportation guides can be made available in the suggested format online rather than as static paper documents, they would be much more useful, particularly if shippers can customize their searches with their own key words and parameters. This would allow for more productive and focused carrier procurement exercises.

Last Saturday I had the distinct pleasure of attending the faculty day for instructors at the Schulich School of Business at York University in Toronto. In addition to running a freight transportation consulting practice, I teach a course on Transportation at Schulich’s Master’s Certificate Program in Supply Chain Management. The day afforded me the opportunity to meet and network with a diverse group of entrepreneurs, business leaders, consultants and academics, an amazingly talented array of people.

During the day there were interesting presentations on new directions the School is taking to educate the business leaders of tomorrow. One of the memorable talks was a fascinating presentation on how students in the Supply Chain Course, and selected other programs, will receive iPads loaded with all of the course material. Using “UCourse Pack”, the attendees will be able to easily take notes and download podcasts and other useful materials.

The highlight of the day was a presentation by the Dean of the School of Business, Dezso Horvath. The Dean spoke with much deserved pride of how under his leadership and the leadership of his colleagues Alan Middleton and Elaine Gutmacher, the Schulich Business School has risen to the top spot in Canada and is the tenth ranked Business School in the world.

Several themes in his talk were particularly noteworthy. It is evident that he and his team have been very tuned in to the needs of their customers. It is clear that they have been at the leading edge in creating curriculum for global business strategies, ethical business practices and environmental issues, well before their competitors.

The world of education is changing rapidly. Universities must demonstrate strong value propositions to attract external financing since government funding will wane. The shelf life of an MBA is only 3 to 5 years. To survive in the current highly competitive environment, continuous learning is essential.

Teaching methods must change. Sacred cows such as the heavy emphasis on the case method must be refined since in the “real world,” we cannot expect to be “spoon-fed” the problem or problems; good leaders have to do extensive due diligence to ensure they identify the true problems and develop strategies to address these problems.

As each of the instructors introduced themselves and spoke briefly about their backgrounds and competencies, what struck me was the sense of pride that Dean Horvath has instilled in his instructors and students. It is a wonderful feeling working for the top company in your sector of an industry. The pride was reflected in the number of years many instructors had taught at the university and in the desire of so many faculty members to take a Saturday and spend the day in an academic environment. It was also reflected in my private conversations with various individuals as they spoke of their desire to upgrade their course material to make it truly at the forefront of graduate business education. The pride in the room was palpable.

The lesson for business leaders, particularly leaders in the supply chain and transportation sectors is clear. Stay close to your customers and make sure your company is at the leading edge of what they are looking for. Develop products and services that put you at the forefront of your industry sector. Secure independent rankings of your company to measure customer satisfaction and continue to refine your products and services until you reach and remain at the top. Share this information with your employees. Instil in them the pride and determination to keep your company at the elite level. This is what good leadership is all about.

The railroads have gone through what some have called a “renaissance” over the past decade. Freight volumes are up significantly, fuel efficiency has improved by 94 percent since 1990 and profits have soared. Much has been written about developments such as the opening of Prince Rupert, the closest port to Asia that is now linked by rail to the industrial heartland of America and the introduction of several new intermodal rail corridors and services. These are highlighted as examples of how the rails are upgrading their service portfolios to meet the evolving needs of shippers.

The rail resurgence comes at a time when highway congestion and environmental concerns have become increasingly important. Railroads are an effective means of mitigating both issues, particularly for longer length of hauls (e.g. greater than 750 miles). A single freight train takes 280 trucks off the road and can move a ton of goods 457 miles on one gallon of diesel. In a recent article it was suggested that if just 10 percent of the trucks on the road were shifted to freight rail, America would save 1 billion gallons of fuel each year.

Yet given these successes and the dramatic changes that have taken place, the railroad industry has come under review by both the Canadian and American governments. Why? Lost in the propaganda, the impressive earnings reports and the positive fuel efficiency data are some key issues that need calm and deliberate debate.

The six major class 1 railways do not truly operate in a fully competitive market. There are two large rails in the eastern United States, two in the west and two in Canada. While there is a junior class 1 railway (the KCS) and a number of short line railways that service limited pieces of geography, the six major players have achieved a level of market power. The Rail Freight Review Panel in Canada came to the conclusion that this “market power . . . leads to an imbalance in the commercial relationships between the railways and other stakeholders. This, in turn, reduces the railways’ accountability for performance. As a result, railways do not always face the consequences that come from offering poor service that occur in other sectors in which competition is more prevalent.”

The concern goes well beyond service. In some markets (e.g. pulp and paper), rail service is essential to the business. Truck is not an option on some corridors. In certain geographic areas there may only be one railroad serving the area. Is it appropriate for one or two railways to have control over the very survival of a company or industry without any recourse or accountability to anyone other than the railroads’ shareholders?

The debate in Canada has been over whether to regulate the industry or create commercial solutions to address these concerns. Would regulations on service performance standards (e.g. metrics) be effective or would there be more value in creating some sort of dispute resolution mechanism? Somehow both approaches miss the mark.

Improving customer service is an issue that the railroads can and are in the process of addressing. These companies are run by clever individuals who can improve the optics of service performance. This can be done by hiring senior Marketing and Public Relations executives, commissioning market research studies to identify areas of dissatisfaction and then creating strategies to pacify and appease various consumer groups.

But these “make nice” strategies to improve service don’t address the core issue. How do you create a more competitive rail industry while allowing the rails to run their businesses and make good profits?

If you look at the big picture, all this “feel good” talk about a rail renaissance overlooks some key points. The economies of North America are in decline. The salvation of America will not come from a lower dollar that seems to drop in value on a daily basis. The U.S. government cannot step aside and wash their hands of the rail problem.

They approved the rail mergers that have allowed for the formation of the big four class 1 railroads in the United States. The rail renaissance is a direct result of the fact that on long haul traffic, the rails have a competitive cost advantage. They can charge whatever they like and still beat truck rates.

What if the rail market was more competitive? What if intermodal costs declined by 5, 10 or 15 percent (and the rails still made good profits)? What if those cost reductions were passed on to the consumer so we all paid less for our large screen televisions, clothes and refrigerators? What if lower retail prices spurred a renaissance in the economies of Canada and the United States?

How can we create more competition for rail services? Unlike a trucking company or airline, you cannot buy a few locomotives and rail cars and set up a scheduled rail service between New York City and Los Angeles. In the rail industry, owning rail assets is of no value unless you have tracks. Even with the infrastructure, you need critical mass to run a scheduled service. Running 2 trains a week with a few boxcars or intermodal containers from Toronto to Vancouver isn’t going to make anyone rich.

The argument by Rep. Bill Shuster (R-Pa.) is that re-regulation “would be a potentially catastrophic public policy that could erase 30 years of positive growth, and threaten to reduce the railroads to the ruinous decreases in services and disinvestment not seen since the 1970s. I firmly believe that if Congress re-regulates rail, it will be only a matter of time before our once self-reliant railroads are forced to rely on taxpayer dollars to invest in infrastructure and safety improvements as federal mandates mount.” He argues that it would discourage the railroads from making the capital investments needed to make their businesses viable.

So here is a thought. What if we could come up with a strategy that increased rail competition, that resulted in lower freight rates and better service, that provided the existing railroads with more revenue and allowed them to gain better utilization of their capital investments? Here is what could be done.

What if we allowed entrepreneurs to enter the business and permitted them access to the infrastructure of the big six. They would run their rail services over existing tracks and pay the big 6 a compensatory fee for this access. They would be free to compete on service and price and build their businesses. This could encourage new entrants with money, energy and fresh ideas to change the status quo, to join the cartel and turn an oligoply into a more vibrant, customer-focused competitive industry, an industry that would strike a better balance between operating ratio and customer satisfaction.

This would create a win-win. Consumers would win by having more service options and better rates. The railroads would win by earning more revenue on their invested capital. The naysayers will state that this is unacceptable since these entrepreneurs did not build their rail businesses from scratch, that this will create safety concerns or increase congestion on existing rail lines. All of these points can be addressed.

The question is do our leaders have the guts and vision to transform the existing rail industry that is inflating our costs and making North America less competitive on the world stage. The approach suggested is similar to what has been done in the telecommunications industry. It is not perfect but it could work.

The status quo is not an option. I am not sure that new regulations and mediation panels are much better. It is time to think about transforming the rail industry as a means of improving competition and revitalizing our weak economy. If you have a better idea on how to increase rail competition without re-regulating the industry, on how to provide shippers with more choices, better service and more responsive railroads while driving more revenue through their assets, drop me a line.

There is much talk in the transportation industry these days about a potential capacity crunch in 2011. This is a familiar refrain that we have heard before. This is causing some folks to question whether this is a ploy by transportation companies to drive up freight rates or whether there is a set of forces at play that could really change the dynamic of the freight industry. Let’s have a look at the events that are shaping this debate.

Those who challenge the theory of a capacity crunch point to a set of fairly powerful headwinds that should dampen the demand for freight services. With the ongoing fragility of the U.S. economy, the weak state of the housing industry and the stubbornly high rate of unemployment, it is difficult to see how a capacity crunch is going to evolve from a major spurt in demand.

The weak demand is coupled with a growth in supply. The railroads and intermodal providers are ordering additional intermodal railcars, containers and chassis. The ocean shipping lines have a large fleet of idled equipment that can be placed back into service. U.S. trucking companies are buying tractors and trailers. Heavy truck sales increased in September by 23.2 percent from August and 37 percent from the previous year. Trailer orders tripled from 2009. This set of data paints a picture of supply adjusting to demand.

In addition, some of the growth in demand in 2010 can be attributed to inventory restocking. This was made necessary by the efforts of many companies in 2009 to bring inventories in line with the fast dropping demand. In other words, the increase in shipping volumes in early 2010 was not a true bump in demand, just an inventory adjustment process that will not be there in 2011.

Then you need to layer in on top the potential for political gridlock in the United States with a Democratic President and Republican House of Representatives. If they cross swords over business incentives and reduced taxes, this could lead to two years of inertia and stalled economic growth. This may manifest itself in a reluctance by the government to spend any more money to pump up the U.S. economy. In addition, 64 percent of the supply chain managers and logisticians responding to a recent Logistics Management survey indicated that they are not currently having capacity issues while 34 percent stated that they are experiencing capacity tighten.

The capacity crunch theorists paint a different picture. There are a number of factors that would suggest that a capacity crunch is not just a possibility but very likely in the second quarter of 2011 and beyond.

The weak American dollar is making U.S. goods more competitive, particularly agricultural products. U.S. containerized exports to Asia are accelerating and could approach record levels this winter. At the same time, strong import traffic from Asia, heading to U.S. retailers, is also surging. The Intermodal Association of North America experienced a 20.3 percent increase in container and trailer traffic in the third quarter. Ocean carriers are convinced that “slow steaming,” the process of lengthening transit times to conserve fuel, will keep a lid on shipping capacity. The by-product of “slow steaming” is the slower movement of inventory. The reduced number of vessel turns further limits capacity.

The increase in import/export traffic is not being matched by an increase in the supply of trucking equipment. The growth in demand for trucks is too low to replace existing equipment dropping out of the capacity pool. With some exceptions, truckers are not expanding their fleets to meet an uptick in demand.

Then you have the CSA 2010 program and potentially revised hours of service legislation in the U.S. The CSA 2010 driver safety initiative has the potential to remove 10 percent or 320,000 truck drivers out of the workforce. More restricted hours of service legislation could serve to reduce driver productivity, thereby removing another layer of capacity. These are expected to have a major impact on capacity over the next five years.

Finally, you have to think that politicians of both major U.S. parties will need to demonstrate some sort of co-operation to move the yardsticks ahead in 2011. Otherwise they both run the risk of alienating the U.S. electorate.

While there is support for both positions, there is momentum building for the pro capacity crunch theory. Shippers are already bracing for higher freight rates next year.