This was another action packed year for freight transportation. The economy began to reset after the challenges of the prior years. This created opportunities and challenges for shippers and carriers. As always, it is difficult to select the top 10 stories of the past year. These are the ones that stood out to me. They are not listed in order of importance.
The United States Federal Motor Carrier Safety Administration (FMCSA) introduced a new safety initiative known as the Compliance Safety Accountability 2010 and it has been the talk of the trucking industry throughout 2010. The goal of the program is to achieve a reduction in large truck and bus crashes, injuries and fatalities, while maximizing the resources of FMCSA and its State partners. The implementation of CSA2010 brings three major changes.
1. The motor vehicle record or driver abstract is being changed.
2. Individual drivers are being audited and each will be given a personal safety rating.
3. An updated safety rating for each driver and trucking company is issued every 30 days.
The personal safety rating will determine whether or not the driver is considered eligible to continue driving, requires some sort of “intervention,” or is deemed “unfit” to continue operating a commercial vehicle. Similarly motor carriers are facing increased scrutiny under CSA 2010 and will experience harsh fines, corrective action plans and even risk having their entire fleets placed out of service due to violations. It is expected that ten percent of the U.S. driver force or 300,000 drivers will exit the industry due to CSA 2010.
Rob Abbott, VP of Safety Policy at ATA, predicts that as many as 25% of the nation's motor carriers will be getting warning letters from FMCSA starting in December. If carriers do only one thing to prepare for CSA 2010, it is learning as much as they can about all aspects of CSA’s new scoring system.
New Intermodal Corridor Hubs
This was a big year for intermodal transportation. The intermodal service providers experienced significant volume increases in 2010. The North American intermodal freight system is being transformed. The class 1 railways are in the process of making significant investments that will reshape and revitalize this important mode of transport.
These changes are designed to achieve a set of important objectives:
• Speed up cross country transit times by bypassing the congested Chicago container sorting facilities for significant blocks of traffic
• Improve the functioning of Chicago’s intermodal operations, one of the most important rail hubs in the world
• Evolve rail networks so they can ultimately handle double stacked containers across their entire systems
• Take market share from truckers by offering shippers a greener option that reduces emissions, reduces highway congestion and cuts shipping costs
• Enhance the ability of the North American intermodal network to move international ocean cargo arriving via east and west coast ports
Several class 1 railways augmented their service by creating double stack corridors. The CSX National Gateway Intermodal includes a plan to open a 185 acre facility in North Baltimore, Ohio in early 2011. This terminal will become the “nerve centre” for stacktrains coming from the west coast so they can bypass Chicago. Their Columbus, Ohio terminal is being expanded to become a major consumer and freight centre. A planned terminal in Pittsburgh will link this heavy manufacturing area with the interstate highways that traverse this area.
Norfolk Southern’s Heartland Corridor project is a three-year engineering effort to increase intermodal freight capacity by raising vertical clearances in 28 tunnels on a Norfolk Southern rail line between the port of Hampton Roads, Va., and Chicago. Completed in September, 2010, containerized freight moving in double-stack trains is able to shave off about 200 miles and up to a day’s transit time between the East Coast and the Midwest. The Crescent Corridor is a railroad corridor expansion program that will run from the Mississippi Delta, up Interstate 81 through Virginia and eventually into New York and will be a major intermodal corridor linking Louisiana and the northeast.
Wal-Mart’s Inbound Freight Program
Wal-Mart launched its’ MABD (Must Arrive By Date) freight program in 2010. U.S. companies shipping goods to Wal-Mart distribution centers must deliver within a four-day window leading up to a MABD date. The requirement initially applies to suppliers that ship prepaid and truckload freight to Wal-Mart DC’s.
The monthly benchmark was set at 90 percent. Those companies that fall short of this target are assessed a “reimbursement” charge that equates to 3 percent of cost of goods sold. It is worth noting that the penalty applies to shipments arriving prior to or after the 4 day window. While inbound freight programs are nothing new, the structure of Wal-Mart’s program has some unique aspects. Leading grocery chains have similar programs. Canada’s Tim Horton donut chain established their own inbound freight program this year as well.
The Economy Performs a 3 Step
There seemed to be three distinct phases to the economy in 2010. Each phase had significant impacts on shippers and carriers. Much of the first half of 2010 centered on inventory restocking, which led to improved freight volumes, shortages of equipment and higher rates, especially when compared to a trying 2009. By mid year, inventory restocking levelled off and the stubbornly high unemployment levels coupled with a lack of consumer confidence manifested themselves in a slowdown. At year end, there are anecdotal reports of a muted but distinct peak season, the first in several years. In other words, we witnessed three diverse mini business cycles within the same year.
YRC and the LTL Sector Still in a State of Flux
The LTL sector of the freight industry that is characterized by geographically dispersed terminal networks and high overhead costs continued to suffer in 2010. YRC in particular continued to fight for survival. Despite multiple union wage cuts, more terminal closures and a debt for equity swap, revenues declined and sustained profitability remains an elusive goal. Those LTL carriers that tried to run YRC off the road in 2009 by taking non compensatory freight paid the price in 2010. Profits took a hit and casualties were suffered in the executive suite of several major carriers.
GRI’s were announced by many LTL carriers at year end. Time will tell how well these increases will stick. The LTL industry is a work in progress and progress is slow.
The Shrinking U.S. Dollar
This was one of the major freight stories of 2010. It is clear that the U.S. Federal Reserve intends to continue to maintain low interest rates to encourage economic growth in the United States and to facilitate export traffic. The value of the U.S. dollar against other currencies continues to decline. The impacts on freight transportation are being felt around the world. From a Canadian perspective, having a dollar essentially at par with the U.S. dollar means cost savings on the sourcing of raw materials from the United States. However, exports are being hurt and as an exporting nation dependent on the movement of raw materials to the U.S., this creates challenges for the recovery of the Canadian economy.
Crisis Management Helped Right Size Many Trucking Companies
As recessions come to an end, typically those companies that are the most poorly managed and capitalized are forced to cease operations. There were thousands of North America based transport companies that were casualties in 2009. In 2010, the good news is that the number of trucking company fatalities declined significantly. Industry executives focused on right-sizing their companies. This included their personnel, their fleets and their terminal networks. This was one of the positive learning experiences from this difficult period.
Many companies went back to the basics. They looked at their costs and margins, the businesses where they could make money and those where there were treading water or worse. Many made the necessary adjustments to maintain the viability of their enterprises. There were very few large or medium scale bankruptcies in the past year.
Yield Management Became More Prevalent
With reduced capacity and a modest appetite for capital investment in expanded fleets, many carriers became more focused and selective in the freight they targeted. We saw this in their RFP responses. Instead of bidding on any freight that is moving, carriers are identifying those segments of the business they can perform well operationally, with minimal empty miles and with good margins. The survivors of this recession are not taking a “flyer” on a broad spectrum of lanes they cannot service properly. They are looking at their costs and yields and targeting those pieces of business that enable them to maximize capital utilization and profitability.
Capacity Shortages are here to stay
Many of the above mentioned variables came together to shrink the available truck capacity. CSA 2010, declines in business volumes, trucking company closures and right sizing all played a part in reducing the industry capacity by an estimated 12.5 percent in the United States.
Freight Rates Begin to Move Up
Tight capacity coupled with a recovering economy is serving to move freight rates up. Shippers in most transportation sectors have been approached for rate increases, both on contracted and spot business. While the increases are nothing like the spikes in the mid 2000’s, the trend is clearly upwards. After taking a major hit during the recession, fuel costs have also been migrating upward.
Happy holidays to everyone. Best wishes for a successful and prosperous 2011.