Freight rates are on the rise in 2011. These increases are being driven by a broad range of forces including tightening capacity, driver shortages, increasing fuel costs, government regulations, improved carrier costing systems and cost increases. To mitigate these increases, the onus is on shippers to do everything possible to skilfully manage their freight programs.

In 2006 I wrote an article entitled “It’s all in the Numbers”. In that piece I highlighted the need for shippers to manage their freight data effectively. Detailed, quality shipment data can allow shippers to identify consolidation opportunities, to address chronic operational inefficiencies that result in accessorial costs, to highlight “maverick” spend(e.g. carriers being used that are not listed in routing guide) , to rectify the use of higher cost modes and to create opportunities to construct round trips and triangles.

Five years later, these issues are still prevalent with many shippers. In fact, the situation has become even more acute. As business volumes increase, smart carriers are focusing on yield management, the process of maximizing profitability on every lane. Shippers that are paying rates below market levels are being targeted for rate increases or risk being “fired” by their carriers. As reported in last week’s blog, manufacturers are also facing increased pressure from large retailers to convert their prepaid programs to collect and let their customers manage the carrier relationships.

Shippers with poor quality shipping data and inaccurate freight cost data place themselves in a vulnerable position. Here are some things to look out for.

Freight Density

LTL shippers pay in part according to the density of their freight. The rate differential at varying densities can be significant. Shippers without accurate product descriptions and freight densities run the risk of paying a premium to move their freight. Many LTL carriers perform scaling and cubing studies, particularly on new clients, to check the density of their freight. Shippers that do not have a good grip on the volume of freight being transported at different densities place themselves at the mercy of carrier costing evaluation studies.

Mode

Freight data bases need to capture the mode used. This data allows companies to detect patterns that are indicative of production problems, inventory shortages or overzealous sales personnel. Being able to track changes in the percentage of small parcel to LTL freight or LTL to truckload can provide warning signals of operational or supply chain shortcomings.

Segregation of Freight Charges

A good freight date base contains segregated line haul costs, fuel costs, duties, itemized accessorial costs and taxes. It allows companies to have visibility into the application of fuel surcharge formulas, to identify currency surcharges and processing fees and to see any patterns of extra charges that may be indicative of poor business practices or unscrupulous carriers. They may also indicate that certain carriers are applying incorrect rates or issuing balance dues to see if they can secure duplicate payments from shippers with weak accounting systems.

Transit times

Service performance is critical to the success of many companies in this highly competitive world. A well structured data base contains the origin and destination of each shipment including zip codes and postal codes, the port of entry and the carrier. They allow shippers to track actual versus promised service levels, to see where there are breakdowns (e.g. late pickups, late deliveries) or delays while en route. They can signal why and where fines are being assessed. They may highlight technological challenges or that certain carriers are not using the latest customs clearance process.

The jobs data released this week from the United States highlights that their economy is on the upswing, albeit slowly. With some truckers reluctant to make major investments in equipment, this will limit growth on the supply curve. This sets the stage for more rate increases later in the year. Since you can only manage what you measure, creating a detailed and accurate freight data base will help strengthen your company’s hand at the negotiating table.

On May 25, Dan Goodwill & Associates and the Business Information Group will co-host its third annual Transportation Company Workshop at the Capital Banquet Centre in Toronto. The theme of this year’s conference is “Revitalizing your Transportation Business in an era of Economic Uncertainty and Social Change”.

As we begin the second quarter of 2011, there are a range of forces at play that are having an impact on the Canadian transportation industry. The economic recovery is being influenced by the turmoil in the Middle East that is pushing diesel fuel prices to $110 U.S. a barrel, a surging Canadian dollar that is now in the $1.04 U.S. range and by the growing importance of social media and new technology. The conference has been structured to help gain a better understanding of the impacts of these and other forces.

For the third consecutive year, the lead-off speaker will be Carlos Gomes, Senior Economist at Scotiabank, who will share his insights on the where the economy is going and what are the implications for the transportation industry. Carlos will be followed by Lee Palmer, President and Creative Director of Palmer Marketing. Lee will provide a “need to know” overview of B2B web marketing illustrated through real world examples from specialists serving the transportation industry. He will draw upon his many years of marketing experience in the transportation industry and address the question of “what gear is your web marketing in”? Lee will be followed by Mark Murrell, President, Carriers Edge, who will focus on what it takes to be a “Best in Class” employer in the trucking industry.

A key part of any business is the effective management of information. Identifying the right Key Performance Indicators (KPI’s) and managing against those KPI’s can help differentiate between the top performers and the rest of the pack. The next two speakers will tackle the subject of data management head-on. Ray Haight, former Chairman of the Truckload Carriers Association and current CEO of ATBS Canada will address the subject of Benchmarking and talk about the opportunity to be a Best in Class trucker by participating in a Benchmarking Group. Ray will be followed by Brooke Martin, Senior Solutions Consultant, Process Fusion Inc. who will speak to the tools that are available to better manage trucking company data. You can only manage what you can measure.

Last year’s shipper panel was one of the most popular features of the Workshop. In an effort to provide all attendees with a better understanding of shippers’ requirements as we move through the balance of 2011, two panels have been assembled, one with some of Canada’s leading retailers and another with a panel of leading manufacturers. The retail panel will include Robert Wiebe, Senior Vice President, Transportation & Logistics, Loblaw Companies Inc., Heather Felbel, Vice President, Supply Chain, Indigo Books & Music Inc. and Ginnie Vensolvaitis, Director, Transportation Operations, Hudson’s Bay Company. The manufacturer panel will consist of Mike Owens, Vice President of Physical Logistics, Nestle Canada Inc., Chris West, Director, US Transportation Operations, McCormick & Company Inc., and Todd Kostal, Director, Purchasing/Logistics, Atlantic Packaging Products Inc. The two panels will be moderated by Lou Smyrlis, Editorial Director of MotorTruck Fleet Executive magazine.

The afternoon session will be kicked off by a panel of leading transportation companies. Lou will again lead a discussion with Chris Raynor, Branch Manager of CH Robinson, Mike McCarron, Managing Partner of MSM Transportation and Michelle Arsenau, President, GX Transportation. These individuals will share with the audience their strategies for adapting their organizations to the changing environment and shipper needs.

Since part of being a Best in Class Company involves assembling a great team of employees, Pamela Ruebusch, President, TSI Group, one of Canada’s leading recruiters in the transportation industry will be the next speaker. Pamela will share her expertise in how to recruit the top talent.

I will follow Pamela and address the issue of how best to respond to freight RFP’s and e tenders. The pervasiveness of electronic technology has made freight bids increasingly popular in recent years. I will share my experience as a freight transportation consultant over the past seven years by outlining how to achieve success with freight bids. Since Customs Clearance processes and procedures continue to evolve from year to year, our final speaker, to be announced shortly, will address some of the latest developments in this area.

Those individuals who register before May 1 will receive a $100 savings on their registration fee. All attendees will receive a CD with a copy of the presentations. Since there is limited seating at the Capital Banquet Centre on Dixie Road in Mississauga, book early to avoid disappointment. To learn more about the conference, click on this link http://www.trucknews.com/workshop/agenda.aspx.

This past week I had the privilege of attending and speaking at the Food and Consumer Products of Canada’s (FCPC) first ever Supply Chain Day. This well-attended event attracted an audience of some of Canada’s largest shippers. The day featured a number of Canada’s leading authorities on logistics and transportation. It also included some fascinating group discussions on some of the most challenging issues facing shippers of consumer products in Canada.

One of the work group sessions that was focused on Western Canada distribution was led by Mark Thomas, Managing Principal at Meta Management Consulting. The very animated discussion touched on many of the issues facing Canadian shippers including the trade-offs of GTA versus western Canada based warehouses, the impacts of the large retail inbound freight management programs, tightening freight capacity, freight cost increases and a host of other issues. One possible approach to address some of these challenges is for food and consumer products manufacturers, whether competitors or not, to more effectively combine their freight volumes. This could serve to reduce costs while maintaining or improving service.

This brought to mind a recent study on horizontal collaboration conducted by eyefortransport. The study defined horizontal collaboration in the supply chain as the process where “manufacturers share supply chain assets for mutual benefit. This can include sharing distribution centres, combining truckloads or collaborating on manufacturing. The important distinction is that horizontal collaboration is co-operation across rather than along supply chains (shipper + 3PL + retailer, for example) and can even be between direct competitors”.

The author points out that “with transportation costs on the rise and increasing pressure to reduce spend, horizontal collaboration provides a unique solution to improving supply chain efficiency, asset optimisation, minimising the risk of emerging markets, and maintaining margin. The initiative is by no means a quick fix – it requires diligence, patience and internal support at all levels. However, forward thinking supply chain executives who implement horizontal collaboration now will gain a crucial competitive advantage in the years to come as opposed to those who ignore its potential”.

The study surveyed shippers, logistics providers, transport companies and consultants/technology providers. “Of respondents who have experience(s) with horizontal collaboration, a notably greater number had done so with non-competitors (95% shippers, 73% 3PLs, 45% carriers) than with competitors (68% shippers, 50% 3PLs, 30% carriers). Results also showed that a slightly greater number of respondents choose horizontal collaboration to bundle complementary goods (66% shippers, 48% 3PLs, 24% carriers), than to bundle non-related goods (48% shippers, 46% 3PLs, 21% carriers), or to share information (49% shippers, 29% 3PLs, 30% carriers). Perhaps the most interesting result was the general trend for carriers to collaborate more than 3PLs, who in turn collaborate more than shippers”.

This begs the question of how does a manufacturer (or carrier or logistics provider) find trusted partners for horizontal collaboration. “The most popular results included; seeking partners that are trusted, seeking partners with similar goals, comparing trade flows and delivery info, seeking partners who sell similar goods, and seeking partners that are customers”.

Shippers who responded to the survey were asked to identify the key drivers encouraging their company to consider or initiate horizontal collaboration. “Cutting transport costs and satisfying customers were seen as the biggest drivers for shippers, though cutting sourcing costs, enhancing customer service, improving delivery times, improving overall efficiency, and cutting distribution costs were all seen as being very important or quite important by more than 50% of shippers.. . . The most widely perceived barriers were; fear of information disclosure, lack of widespread acceptance of idea, difficulty starting trusting relationships, and difficulty finding appropriate partners”.

In one of the morning sessions at the FCPC meeting, Jim Eckler, President of Eckler Associates, examined some key “Canadian Supply Chain Outsourcing Trends”. He suggested that one of the top priorities for logistics providers is to become more innovative. The very same comment may apply to shippers as they deal with the unique challenges they face in 2011. Taking Horizontal Collaboration to a new level may be one such strategy that leading edge shippers should be exploring more diligently.

For many years America has been the envy of the world. Its powerful, diverse economy helped generate consistent freight growth and produce a very vibrant freight industry. But America’s success ignited an escalation in the value of the greenback and a shift of production to lower cost sources of supply. The current issue of Logistics Management contains some amazing statistics that capture the impact of these changes.

• The U.S. has lost approximately 42,000 factories since 2001.
• The U.S. has lost about 5.5 million manufacturing jobs since October 2000.
• Today 12 million American work in manufacturing jobs, the lowest level since 1941.
• The percentage of people working in manufacturing jobs has dropped from 28 percent in 1959 to 9 percent currently.
• The U.S. has lost 32 percent of its manufacturing jobs since 2000.

In a separate study reported on Canadian television this week, over the decade 2000 - 2009, U.S. based multinational companies have cut 2.9 million manufacturing jobs in America while they created 2.3 million jobs overseas.

During this same time frame a set other powerful forces were unleashed. Certain countries became very proficient in manufacturing particular products (e.g. cars, television sets, smart phones, clothing etc.). There was also the miniaturization movement that resulted in shrinking the size of so many technology based products. Then the great recession hit in late 2008 and 2009 driving out more manufacturing jobs and causing a significant decline in freight volumes across all sectors.

An economic recovery is underway but is hitting a number of headwinds brought on by rising fuel costs, the CSA driver safety program and new (reduced) driver hours of service. However, the good news is that as the U.S. dollar has fallen to its lowest level since August 2008, manufacturing jobs have risen for the first time since 1997.

According to IHS Global Insight and Moody’s Analytics, U.S. manufacturing jobs are expected to grow by 330,000 or 2.5 percent this year. Thomas Runiewicz, an economist with IHS Global Insight recently told the Wall Street Journal that the economic rebound is being driven by three factors:

• Quality - - U.S. workers produce superior products
• Onshoring - - U.S. manufacturers are rediscovering the value of producing goods in America
• Excess U.S. Capacity and Infrastructure - - Unused plants and real estate exist throughout the United States that can be retrofitted for specific purposes.

The Logistics Management article highlights three companies (e.g. Whirlpool, Dow Chemical and Caterpillar) that are expanding production in America. The plunging U.S. currency is also providing a boost in revenue for many U.S. based exporting companies. The 15 percent decline in value of the U.S. dollar over the past nine months is reigniting export sales.

Vincent Delisle, Scotia Capital Strategist said a combination of healthy economic growth and a weak greenback represent “a sweet spot” for U.S. profit growth. An article in the April 22 issue of the Toronto Globe and Mail highlights the fact that IBM receives 64 percent of its revenues from non-U.S. sources. Their 2010 non-U.S. revenues were up 4.4 percent as compared to 2009. Similarly Johnson & Johnson’s 2010 non-U.S. revenues represent 52 percent of their business and were up 3.6 percent over 2009.

Nearly one-third of S&P 500 revenues come from non-U.S. sources. Peter Gibson of CIBC World Markets points out that roughly one-fifth of the companies on the S&P 500 are what he calls “value-added exporters” – U.S. multinationals that get more than half of their revenues from outside the U.S. Analysts said that the U.S. sectors that stand to benefit the most from the weaker currency because of their large exposure to foreign markets are consumer goods, information technology, industrials, energy and materials.

Of course, what goes down may and likely will go up. America cannot live forever on a low value dollar. What will it take to sustain America’s growth? The Harvard Historian Niall Ferguson, who has just written a book, Civilization: The West and the Rest, offered this historical context: “For 500 years the West patented six killer applications that set it apart. The first to download them was Japan. Over the last century, one Asian country after another has downloaded these killer apps. ---- competition, modern science, the rule of law and private property rights, modern medicine, the consumer society and the work ethic. Those six things are the secret sauce of Western civilization.”

Recent studies now indicate that America has slipped back on where it ranks on these variables. As an example, in a 2009 study, American 15-year-olds ranked 17th in science and 25th in math out of 34 OECD countries. America must refocus on these six killer apps as part of a process of reindustrialization to create expanded domestic and international freight flows.

While much of the world’s attention has been focused on the “wedding of the century” in London this week, history is about to be made in one of the British Commonwealth’s largest and oldest countries, Canada. If the polls are correct, the National Democratic Party or NDP is expected to finish second, ahead of the Liberal Party (for the first time) and possibly rob the Conservatives of a majority government. We will have to wait until Monday night to see how the vote plays out.

With the focus about to shift to Canada, I thought it was time to write a blog on what makes Canada unique from a freight perspective. As one drives along the highways of Canada and watches the Schneider, FedEx, YRC and Landstar trailers go by, one may be lulled into thinking that the Canadian freight scene is simply an extension of the United States market. It isn’t. While some American carriers have established a solid foothold in Canada, (and others have not), the Canadian freight market has some unique characteristics.

Canada’s distinct geography, population size, climate and culture make its freight market quite distinct. With a population about one tenth the size of the United States, mostly spread out over a vast distance along the Canada/U.S. border, the Canadian market poses some significant challenges.

The lack of freight density makes a long haul hub and spoke approach impractical for an LTL operation. The country has four distinct markets - - Atlantic Canada, Quebec, Ontario and Western Canada. These markets are not homogeneous. For example, Newfoundland is an island off the coast of Atlantic Canada and British Columbia is on the other side of the Rocky Mountains. Most large cities are within a 200 mile radius of the U.S. border but many of the country’s raw material exports (e.g. pulp and paper) come from plants in the northern part of particular provinces.

Unlike the United States, Canada has no truly national LTL carriers. It has mostly regional LTL carriers that service specific niche markets, domestic and/or cross-border. To obtain complete coverage of Canada, one must align with certain transportation companies, large or small, that in turn partner with designated interline carriers. There are carriers that provide good coverage of Atlantic Canada, for example, but have limited networks in Ontario, Quebec and elsewhere. Other carriers have western networks but do not have good coverage of Quebec and/or Ontario.

LTL Distribution from Central Canada to Western Canada typically involves shipping to key deconsolidation terminals such as Winnipeg, Calgary or Vancouver and then using a “beyond carrier” or carriers to serve other markets in the province. Unlike the United States, there are three modes of LTL transport to the west - - intermodal, over the road and expedited (e.g. team drivers). Each mode has its own set of transit times and price points. Intermodal transportation of LTL freight to the west has been well accepted for many decades. With so much of the country’s manufacturing done in central Canada, back haul freight is an issue that must be addressed by each carrier contemplating a western service.

There are a variety of truckload and intermodal operators in Canada, each one specializing in specific regional, short haul or long haul markets. While there are number of large Canadian (e.g. Challenger, Bison) and U.S. (e.g. Werner, Schneider) truckload players, the majority of the carriers have smaller operations (e.g. less than 50 trucks). Similarly, there are a range of freight management companies, U.S. (e.g. Hub Group, CH Robinson) and Canadian (e.g. Axsun Logistics, Lakeside Logistics) that participate in this sector.

While domestic and cross-border truckload shipments are priced in a manner very similar to U.S. truckload traffic, domestic LTL freight is priced differently. One does not find discounts off a NMFC tariff. This freight is usually priced on a commodity specific rate (cents per hundred pounds) structure, based on the density of the freight.

The cross-border LTL freight market has some unique aspects. There are no American or Canadian carriers that have a complete North American LTL network. Some U.S. (e.g. YRC, FedEx) and Canadian carriers (e.g. Vitran) have extensive but partial networks while others work on a partnership basis (e.g. Estes/TST Overland Express, Reliance Network). Some companies employ a discounted NMFC pricing structure for cross-border LTL freight while others employ a per pallet/multi pallet, quarter load, half load approach. Some companies offer both types of pricing.

CN and CP Rail are the two class 1 railways in Canada. CP essentially runs a rail service between central Canada and Western Canada. It also covers certain markets in the U.S. Midwest and northeast. CN Rail has rail service between Central Canada, Atlantic Canada and Western Canada. They also serve northern areas in Quebec, Ontario, Manitoba and other provinces. Their facility in Prince Rupert, BC is the shortest gateway to Asia. With their purchase of the Illinois Central several years ago, they provide service through Chicago down to New Orleans. Canada also has a thriving small parcel industry with the major U.S. players (e.g. UPS, FedEx) battling a host of Canadian companies (e.g. Purolator, Canpar, Midland Courier et al.).

Canadian regulations are set by the federal, provincial and municipal governments. It is extremely important for any company contemplating doing in business in Canada (or the U.S.) be fully informed on all of the relevant laws and practices. This includes such bread and butter items as hours of service and allowable tractor types and trailer lengths on specific highways. Since new customs related processes (e-manifests) are introduced on an annual or even more frequent basis, it is essential for transportation company management teams to be fully conversant on the latest regulations.

Canada has two official languages, English and French. About 80% of the population in Quebec is of francophone origin. Companies will likely be more successful selling freight services in the Quebec market if they employ people who are local, have a following of accounts and are actively engaged in the freight community. To airlift English speaking sales personnel into Quebec from another province or state will likely produce disappointing results.

Then you have the issue of currency. The Canadian dollar has appreciated by 70 percent as compared to the American dollar since 2001! The change in currency value has reversed the head haul and back haul pricing dynamic on cross-border freight. This dramatic change is having a major impact on specific industries and on the financial viability of sourcing some products from Canada. Motor carriers must be very prudent in selecting one way movements from specific locations since back haul freight, or at least back haul freight that makes an adequate contribution to the profitability of the round trip, may be a challenge to secure.

If the Canadian election results play out as the pollsters are predicting, the country will likely embark on some further changes that may have an impact on the freight transportation landscape. As an example, the leader of the NDP has spoken extensively about investing in infrastructure during the election campaign. If he becomes leader of the opposition, will he press the government to spend money on these types of initiatives? Check out the Canadian election results on Monday night. They will certainly be interesting and possibly historic.