We enter 2012 with a lot of unknowns. Will the European debt crisis be resolved effectively and expeditiously or will it lead to another recession? Will the American economy that is showing some signs of improvement, be able to strengthen during a U.S. election year that will likely produce more political gridlock? Will the expected surge of foreclosed homes further depress the U.S. housing market and the economy or will the buyers of these homes create a resurgence in home renovation? Will North American consumers drive a solid increase in the purchase of goods and services at the expense of higher debt per capita or will this be a year to pay down debt and hunker down for what is expected to be a long and slow economic recovery? Will business leaders feel confident enough to take some of the trillions of dollars that have been parked and invest in plant, equipment and new hires or will they keep their hands in their pockets and drive the unemployment rate higher? I wish I knew the answers to these questions since they will have a material effect on freight transportation.

With these issues as a backdrop, here are some suggested strategies to lead your freight transportation organization in 2012.

1. Expect the Unexpected and take an “Emergent” Strategy Approach

In such a volatile climate, a “proceed with caution” approach would make good sense in 2012. This would include everything from fleet purchases to new hires.
Unless a clearer picture begins to appear from the shadows of 2011, it would be wise to take an “Emergent” strategy approach first suggested by Professor of Business Strategy Henry Mintzberg at McGill University in Montreal. Instead of the more commonly used deliberate approach, the emergent approach is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. It is a more grass roots, front-line oriented approach where solving real business problems lead to new strategies. Executives should look for new business opportunities among their front-line troops and middle managers. They should test a number of these opportunities using an approach known as Jugaad.

2. Encourage Frugal Innovation or Jugaad

Jugaad is a Hindi word that, in short, refers to making do with what one has to solve one’s problems. In a business context this means bringing innovative products to market despite limited resources – if not thanks to limited resources, since it is financial constraints that drive it in the first place. Frugal innovation results in great value — no-frills, good quality, and functional products that are also affordable. The idea is to plant a number of seeds, scale up those experiments or pilots that work. Then, when they have proven themselves, ramp them up and spread the key, few winning innovations across the organization. This connects middle managers who are close to the customers with access to the senior executives who control the purse strings. Using an “Emergent” strategy approach and Jugaad, allocate capital and resources to the ones that work.

3. Create Capacity, Hire Drivers to fully Capitalize on the Winning Pilots

If the expectation is slow growth in the years ahead, one must be careful to add capacity to those opportunities that produce profitable growth. Using the successful pilots as a guide, add to your fleet and driver pool to scale up the revenues and profits from these successful business opportunities.

4. Create a Driver Friendly Culture to expand your business

Driver turnover rates are increasing again. As a variety of demographic, economic and regulatory (e.g. CSA) forces play out, driver retention must be a key element of any trucking company’s business strategy. In order to capitalize on your company’s successful new transportation service initiatives in 2012, there will be a requirement to recruit, compensate, train, manage and retain a quality driver team.

5. Maintain Yield Management Strategies and Pricing Discipline

With tight capacity, many trucking companies became far more focused on their costs, their competitive strengths and their margins to improve profitability. This pricing discipline should be maintained in 2012 as companies seek to grow their revenues from their successful pilots.

6. Ramp up your Dedicated Trucking Business Strategy

The challenging economy should continue to drive manufacturers that do not have the critical mass or skills to run a private fleet, to outsource this function to the professionals. A dedicated trucking operation is a way for shippers to lock in capacity and reduce freight costs while for carriers it provides a steady revenue stream and guaranteed capital recovery over multiple years, a true win-win proposition.

7. Migrate from being a Transportation Company to a Supply Chain Solutions Provider

One of the major trends over the past 10 to 15 years has been the emergence of logistics service providers. These companies have been able to become the “go to” suppliers for a range of supply chain services including warehousing and transportation. Shippers have become increasingly comfortable outsourcing their logistics requirements to these middlemen.

In addition, established trucking companies of all sizes have been extending their services portfolios into new areas (e.g. global, intermodal, truckload etc.). Trucking companies, even small niche players, need to take a careful look at their customers’ requirements and calibrate their value propositions and service portfolios to them. This involves far more than creating a “logistics” division to broker loads that they cannot move on their assets. It implies redesigning their companies to provide a range of services, some of which may not be available today. This expansion should be closely linked with their “Emergent” business strategies.

8. Kraft an Intermodal Strategy

Intermodal transportation has historically been a small slice of the total freight pie. That is changing. The rails have made big investments in service, reliability and in their networks. The effective intermodal length of haul is moving from over 1500 miles a few years ago to as little as 650 miles. Even for niche players in the transportation arena, it is time to take notice of what is going on in the railroad industry and develop a strategy to take advantage of these changes.

This year is predicted to be one with slow economic growth and potential surprises. An “Emergent” strategy coupled with a Jugaad approach may be an effective way to create and expand successful new service pilots into consistent revenue streams.

For the past decade, the Canada-U.S. model of economic integration has been deteriorating - - a victim of a border chocked with traffic, an overreaction to the 9/11 attacks, steep fees and erratic regulation. FAST trade has become thick trade. Canada – U.S. trade peaked in 2000 and has stagnated since. Between 2001 and 2010, Canada’s dominant share of U.S. imports has fallen precipitously across a range of products - - from furniture and electrical equipment to printing, paper and plastics.

Market share worth billions of dollars now belongs to China. This reduction in efficiency came during a period of expanding global trade as China in 2009 eclipsed Canada as the leading exporter to the United States.

The new deal that was announced in December 2011 by President Obama and Prime Minister Harper addresses America’s concern with security and Canada’s need to facilitate trade. Rather than publish a comprehensive document as was done with the North American Free Trade Agreement, this new deal basically consists of a press release and a set of good intentions. It has been called the North American Border Security and Trade “Trust Us” Deal. Since the United States is in the midst of an election year and since some of these initiatives will require congressional approval and funding, time will tell as to how many of these good intentions become reality.

The good news is that there seems to be a consensus that a number of these action plans will take effect over the next few years. These are some of the specific programs that will have a direct and positive effect on trade and transportation.

Harmonize and Improve “Trusted Trader” Programs

The idea is to let companies fill in one application to participate in a variety of “trusted trader” programs which allow regular exporters to get their goods across the border more quickly. As an example, there is expected to be mutual recognition and hopefully harmonization of the two main “trusted trader” risk assessment programs, the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT) and the Canada Border services Agency’s Partners in Protection (PIP). The intent in the future is if a company applies for participation in either program and is approved, this will permit participation in both programs. A pilot project is planned.

Improve Pre-Clearance and Expedite Border Crossings

The intent is to expedite border crossings with commercial traffic by providing more dedicated lanes and technology and measuring and posting wait times ahead of border crossings. Carriers that are not FAST approved will have to wait in line at a designated area away from the border so as to not interfere with the smooth flow of goods moving with approved carriers. There are also pilots planned for Montreal and Prince Rupert, B.C. to clear cargo once at these first points of entry.

Create Common Regulation and Streamline movement of Food Products across the border

Another issue that has created inefficiencies in production and trade has been the varying food regulations in the two countries. For example, Canadian companies are permitted to produce 19 ounce cans of certain canned fruits and vegetables while they are not allowed to manufacture 16 ounce cans, the preferred size for U.S. consumers in Canada. The two countries have set up a council to address the so-called “tyranny of differences” and to make sure regulations and standards don’t block the movement of goods and services across the border. Much of the emphasis will be on food and agricultural products. Another pilot will test whether it makes sense to cut back on the inspection of agricultural and food products that have a good record of compliance.

“This - - - (Trade and Security) - - - announcement is not about a common border; it is about an integrated economy and our shared vision for good jobs, increased investment and a higher standard of living,” said CME president and CEO Jayson Meyers. “Canada and the United States do more than just trade with one another. We build things together; We innovate together. And now we must work together to create a collective future that puts manufacturers and citizens alike in the fast lane to prosperity.”

The agreement did not address such issues as the lack of standardization of truck weights and Cabotage. Nevertheless, the new pact or more correctly, this series of agreements will take much work to implement effectively and convert into bottom line results for shippers and truckers but they have great potential to improve cross-border trade between Canada and the United States.

As I reach my 30th anniversary in the freight transportation industry, I continue to be struck by the lack of innovation in this business. While we have had some changes over the past three decades (e.g. transition from 48 to 53 foot trailers and containers, scheduled train service, the rise of international freight transportation, speed limiters, GPS tracking devices, more energy efficient engines and transportation management software systems, the industry has not changed much when compared to others. If one looks at the retail industry and the advent of shopping over the internet, or the music industry and the advent if iTunes and iPods or the book and magazine publication industries and the advent of tablet computers, the transportation industry lags behind in innovation.

One can argue that changes in the transportation industry are constrained by existing road and rail infrastructure, government regulations and by the huge cost of changing transportation equipment standards. The fact is that with hybrid and battery powered engines in their infancy, we still have diesel powered tractors and locomotives pulling trailers and rail cars as we have had for decades. As a result, when a shipper or carrier tries to “break out of the box” and come up with something significantly different, we all should take a close look to see if this could be an opportunity to improve the competitiveness of North American supply chains.

Four five decades, wood pallets have been the industry standard for moving packaged freight. Swedish retailer Ikea is replacing its wooden plates, not with plastic but with paper pallets. Ikea uses 10 million pallets a year to ship its goods to its 287 stores in 26 countries. In January, Ikea will make the switch to paper with an expected savings of ten percent in transportation costs.

The new corrugated cardboard design can support shipment weights of 1,650 pounds or 750 kilograms. At two inches high, the paper pallets are one-third the height of wooden ones and at 5.5 pounds each, ninety percent lighter. The pallets will be recycled after each use.
The company will have to spend $124 million U.S. on paper and new forklifts. Ikea expects to cut its transportation costs by $193 million U.S. a year. This initiative is already being met with skepticism by those who believe that paper pallets may not meet the requirements for durability and may be adversely affected by weather.

Jeanette Skjelmose, Ikea’s sustainability chief of its supply chain unit has heard these comments and is not concerned. She points to very heavy shipments sitting on paper pallets in a store in Sweden and to the fact that she does not expect the pallets to be left sitting outside of an Ikea store for any length of time. It will be interesting to see the results of Ikea’s experiment in a year or two to determine if this innovation in transportation has the potential to change a fundamental element of freight transportation that has endured for fifty years.

It is hard to believe that a year has gone by since I sat in on a presentation on Social Media in Transportation at the 2011 SMC3 Winter Conference. This past week David Tuttle, VP, Digital Strategy at TMP Worldwide (who spoke last year) was back again and joined by Bobby Harris, President and CEO of BlueGrace Logistics. In the short space of 12 months it is clear that social media have exploded in popularity.

Here are a few statistics to reinforce this message. There are 800 million global profiles on Facebook, Twitter has 175 million users and LinkedIn has 150 million profiles. Facebook reaches 85% of logistics professionals on the internet – over 2.8 million people; Twitter reaches over 22% of logistics professionals on the internet; LinkedIn Reaches 19% of logistics professionals on the Internet.

Beyond the impressive user numbers, there appear to be two breakthroughs this year. The first is in functionality. Companies and individuals are now starting to figure out how to embed the capabilities of social media in their businesses.

David highlighted the “follow me” feature on LinkedIn. It allows people to stay up-to-date on employment opportunities and organizational changes at companies of interest. Your “career page” beside your “company page” is a powerful tool to “inform active and passive candidates” of opportunities. It can be used to “see who is following your company and send automatic updates.” Twitter can be custom branded and used both as a tool to communicate with your followers and to follow them as well.

David also noted that a Facebook page for your business, with photos that tie in to the website or other business activities, can play a key role. Targeted ads can be placed on the right side of the Facebook page and can be tailored to the specific demographics and interests of your customers. Each company pays for these ads on a CPC basis. He also spoke about the importance of scheduling your communication over a period of time to maintain the attention of your fans and followers. Take advantage of opportunities to connect directly with your fans.

The second breakthrough has to do with the relationship between social media and company culture. In his presentation, Bobby Harris called social media the “DNA of the BlueGrace culture.” One of the important points he made in his presentation is “Don’t do Social, Be Social.” He stressed the point that it is not just about creating a profile on Linkedin or Facebook; it is about making social media an integral part of your business.

At BlueGrace Logistics, employees are encouraged to use social media internally. As Bobby said, “people buy from people.” As a result, the company is very focused on the demographics of their clients. Their social media use (e.g. supporting local causes in the community, UFC sponsorship) is aligned with the demographics and interests of their client base. Bobby Harris is able to speak directly to his 100 plus employees with his regular YouTube videos. The BlueGrace strategy is not just focused on improving employee morale; it is designed to improve the company’s bottom line. By being an active social media participant, this increases the company’s brand awareness, humanizes the company’s image, provides superior customer service and produces tighter links with partners and customers.

One of the pathways to success is to establish a social media point person in each company and to actively measure results. Both gentlemen offered some unique insights on a communication tool that is growing in importance on a daily basis.

Over the past two months Stephen Harper has presented a clear and compelling vision of where he wishes to take Canada during his tenure as Prime Minister. First there was the border Security and Trade Agreement with the United States that he and President Obama announced to the world in December. He followed this announcement with an important speech this week in Davos, Switzerland at the World Economic Forum in which he outlined his plans to expand trade with nations around the world.

It is important to put these initiatives in context. Canada has the 10th largest economy in the world. Thirty percent of the country’s GDP comes from exports. The United States is Canada’s largest trading partner receiving 73 percent of Canada’s exports and 63 percent of its imports. Canada receives 23 percent of U.S. exports and 17 percent of its exports. Canada is the number one export market for 35 of the 50 U.S. states. Trade with Canada is more than twice the volume of all U.S. trade with the nations in the European Union. While the north/south flow of goods has changed over the years due to the rise in the value of the Canadian dollar against the U.S. dollar, this is still a very large and important trading relationship for both countries.

The Security and Trade agreement announced in December will facilitate freight flows by reducing the number of inspections and integrating the trusted trade programs of the two countries. The rhetoric and political posturing over the past few weeks concerning the Keystone Pipeline project has overshadowed the size and scope of our trading relationship with the United States and the initiatives being taken to take this relationship to a new level. “We will also continue working with the Obama administration to implement our joint ‘Beyond the Border’ initiative, our plan to strength and deepen our economic and security links to our most important partner,” stated Prime Minister Harper in Davos.

This week the Prime Minster made it very clear Canada will not put “all of its eggs in one basket.” The nature of the Canadian economy, the need for Canada to market its energy, wheat, potash, pulp and paper and manufactured goods requires the country to sell and distribute these goods to other markets. “However, at the same time, we will make it a national priority to ensure we have the capacity to export our energy products beyond the United States, and specifically to Asia. In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays - that is, delay merely for the sake of delay,” commented Prime Minister Harper.

“We will continue to advance our trade linkages. We will pass agreements signed, particularly in our own hemisphere, and we will work to conclude major deals beyond it. We expect to complete negotiations on a Canada-EU free trade agreement this year. We will work to complete negotiations on a free-trade agreement with India in 2013. And we will begin entry talks with the Trans-Pacific Partnership, while also pursuing other avenues to advance our trade with Asia.”

For leaders of Canadian and American transportation organizations, the messages are clear. The P.C. government will continue to press for enhancements to current processes to expand trade with the United States, Canada’s number one trading partner. But the Tories will expand Canada’s global trading footprint with free trade deals with the European Union, India and other countries. For Canadian transportation companies that have been primarily focused on domestic or cross-border trucking, this is the time to revisit their strategies to focus on how they can expand their portfolio of transportation services to capitalize on Canada’s “going global” strategy.