Trade using surface transportation between the United States and its North American Free Trade Agreement (NAFTA) partners, Canada and Mexico, was 6.6 percent higher in June 2012 than in June 2011, totaling $82.6 billion, unadjusted for inflation according to the Bureau of Transportation Statistics (BTS) of the U.S. Department of Transportation. Adjusted for inflation and exchange rates, the June 2012 total was $61.0 billion in 2004 dollars, up 11.0 percent from June 2011.

BTS, a part of the Research and Innovative Technology Administration, reported that the June 2012 value of U.S. surface transportation trade with Canada and Mexico rose 11.4 percent from June 2008, seven months into the recession, and 62.8 percent from June 2009, at the end of the recession.
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The value of U.S. surface transportation trade with Canada and Mexico in June increased by 79.0 percent compared to June 2002, a period of 10 years. Imports in June were up 69.7 percent since June 2002, while exports were up 90.8 percent. Surface transportation includes freight movements by truck, rail, pipeline, mail, Foreign Trade Zones, and vessel. In June, 87.7 percent of U.S. trade by value with Canada and Mexico moved via land, 8.3 percent moved by vessel, and 4.0 percent moved by air.

In June, the value of railed imports between the United States and Canada rose 16.6 percent to $6 billion and value of railed exports soared 25.5 percent to $3 billion. The value of railed imports between the United States and Mexico climbed 16.1 percent to $3.3 billion and value of railed exports increased 7.7 percent to $2.3 billion.

For the same month, the value of trucked imports between the United States and Canada rose 2 percent to $12 billion and value of trucked exports jumped 6.4 percent to $18 billion. The value of trucked imports between the United States and Mexico climbed 8.7 percent to 15.6 billion and value of trucked exports increased 9.6 percent to $11.8 billion.

The value of U.S. surface transportation trade with Canada and Mexico decreased 1.4 percent in June 2012 from May 2012. It should be noted that truck imports and exports between the United States, Canada and Mexico declined between May and June 2012, while rail imports and exports continue to be strong. Month-to-month changes can be affected by seasonal variations and other factors.

U.S. trade by surface transportation with Mexico has increased at a faster pace than trade with Canada. U.S.-Canada and U.S.-Mexico surface transportation trade in June 2012 both increased compared to June 2011 with U.S.-Canada trade reaching $48.4 billion, a 5.0 percent increase, and U.S.-Mexico trade reaching $34.2 billion, an 8.8 percent increase.
In June, Michigan led all states in surface trade with Canada, at $6.5 billion, a 4.5 percent increase from June 2011. Michigan was followed by Illinois, California, Ohio and Texas. Of the top 10 states by value, California had the largest percentage increase over June 2011, at 55.1 percent. The largest commodity that is traded between California and Canada, vehicles, increased 171.6 percent from June 2011 to June 2012 to $1.66 billion.

The top commodity category transported between the U.S. and Canada by surface modes of transportation in June was vehicles, valued at $9.9 billion. This was followed by oil and gas, computer related machinery and parts, electrical machinery and equipment and plastics.
Texas continued to lead all states in surface trade with Mexico at $12.4 billion, an 11.0 percent increase from June 2011. Of the top 10 states by value, Tennessee had the biggest percentage increase, 21.1 percent, primarily because of a 31.0 percent increase from June 2011 in trade in computer related machinery. The top commodity category transported between the U.S. and Mexico by surface modes of transportation in June was electrical machinery with $7.0 billion in trade.

It is not a joke. It is happening out there. The fact that it is happening caused a tidal wave of comments on the LinkedIn “A Truckload, Trucking, Logistics, Supply Chain, 3PL, Distribution group” over the past week. Here is a sample of what the group members had to say.

“I have asked for and gotten almost $4.00 per mile on loads from the Central Valley in California to Portland/Seattle. These are reefer loads, not dry, but that's a good rate...unless you know beforehand that IF you can find a load back out of that area you will be turned down for the load a lot of times if you want more than $0.89 per mile. On that lane you’ve got to get your money going in...you won't get much out of there,” stated one trucker.

An Operations Manager at another trucker stated, “As someone who has been in this business a long time, I really don't see how $ 3.00 - $ 4.00 a mile rates would be considered greed. The cost associated with transportation - insurance , fuel , equipment, taxes, maintenance have all increased about 4- 5 times over what they were 25 years ago while the rates in most lanes have remained pretty much the same. Brokers are taking a bigger cut in most cases, not all. Generally 8- 10%, used to be the norm”.

“I guess it depends on the load itself” stated a Transportation Planner at a Freight Agent. “Shorter miles equal higher rates. Some carriers are just plain greedy, but then some are working the negotiations, asking for higher rates knowing they will have to take less, but hoping to find a happy medium”.

A sales person/dispatcher at a logistics company provided these insights. “See, these are longer miles between 950 miles to 1150 miles. . . I am all about paying a carrier a fair rate, offering more than the bigger brokers, but to pay $3-$4 per mile is outrageous . . .
Certain people are just plain rude, say your rate isn't good enough and just hang up. It is really becoming tiresome to a point. I want to know what you are thinking and the reasoning behind such a rate. The best part about this week is not ONE word about the Hurricane. I am about good reasoning and to say that a backhaul that pays the same as it always has for years is all of a sudden the reasoning for a $4 per mile outbound is just an excuse”.

“It depends on the trade balance on the specific O-D,” stated an executive with a Canadian freight broker. “Sometimes the freight going the other direction is scarce and/or really low paying. I agree that it's not normal in many cases, but sometimes it's the only way . . . To pay . . . $4 a mile when you know the guy has to run empty to get it is not unreasonable”.

An executive with an asset and non-asset based transportation company stated that “Carriers quoting these rates are basically surfing the boards looking for a broker in a bind and won't book the truck until late afternoon. They get their driver when he is at home so if they don't get a load he just sits and then they just start calling on posted loads and post their truck to markets where the most loads are posted. They just hope to catch you in a bind. The load boards have made it so that carriers can be profitable without dealing with a direct customer. It is the "Great Commoditization of Trucking". Fifteen years ago you would never have considered operating a trucking company without direct customers . . . today you can succeed on broker freight. I'll get off my soap box”.

“It's interesting that this topic is up for discussion when the trucker has the upper hand in freight negotiating. I can guarantee that the moment the trucks to load ratios changes to favor the shippers there will be no concern shown when truckers complain about low rates and brokers "gouging" the trucks,” stated a trucking company owner.

The last word goes to a freight agent. “I think if the price gets too high it'll come around to bite us all in the ass-ets. Here is the domino effect:
Too high shipping costs = shippers have to either pass the price onto their distributors and risk them going elsewhere, or eat the loss = distributors raise the price on consumers = consumers buy less = then shippers have to cut back on production = layoff workers = bad for economy.

It does depend on the miles, but I think the original post on this subject meant on a long haul lane. There's nothing wrong with $2.50 if it includes fuel, but when carriers ask for more than that, then it's just greed”.

Have a Happy National Trucking Week!

The 2012 Surface Transportation Summit is just a few weeks away. Click on the link www.surfacetransportationsummit to see the agenda and register.

For four years the U.S. has been in a slow motion economic recovery. Unemployment remains chronically high with little sign of improvement. Annual GDP growth is below 2 percent and is expected to remain at that level for some time. This week, the U.S. Federal Reserve had to undertake its third quantitative easing initiative in the last few years, along with committing to holding interests low until 2015, to try to get the economy untracked.

The U.S. election is less than two months away. While the two major political parties have very different views on a range of social issues, there should be some common ground on the economy. The fact is that there is a desperate need to rapidly increase economic growth and reduce unemployment.

While I am not a trained economist, it seems to me that there are a set of economic paths that America needs to embark on to right the ship. It would certainly help if government and industry leaders had a shared vision of the paths that need to be taken. Here are a few thoughts.

Both Presidential nominees talk in lofty terms about an American manufacturing renaissance. Governor Romney has talked about creating 12 million new jobs over the next four years which would far exceed the 80,000 to 100,000 jobs per month that are currently being created. It is almost impossible to conceive how this large number could be achieved with a projected growth rate of 1.5 to 2.0 percent GDP growth.

While this writer and others have written about an upswing, this year, in manufacturing jobs in the United States, the fact is that manufacturing has been in decline in the U.S. economy for three decades. Over the past 12 years, U.S. manufacturers have cut 31 percent of their workforce, or nearly 6 million workers. This should not imply that the U.S. should give up on manufacturing. Rather, it suggests that industry and government should focus on those sectors where the U.S. has the best chance of succeeding and leading in the world.

Some of the opportunities for U.S. growth are highlighted in the book, That Used to be Us by Thomas Freidman and Michael Mandelbaum. Here is my short list.

1. Focus on the Core Industries where U.S. manufacturing has the best chance of success

Certainly technology and the automotive sector would be two sectors to consider. America has and should lead in the design of great technology and great cars, particularly energy efficient cars that will become increasingly popular in the years ahead. These are both growth industries with great potential, so long as bets are placed on the right products.

2. Craft a Diversified Energy Strategy

America is in the process of finding new reserves of crude oil. North America has an abundance of natural gas, coal and other fuels. Being the world leader in energy procurement, energy development and energy efficiency would seem to be a critical component of the country’s business strategy. While American cannot and probably should not think about being energy independent, it should reduce its energy dependence. This would have significant economic and political benefits.

3. Master Supply Chain Excellence

While manufacturing may be more cost effective in other countries, Americans still need to export their goods efficiently and import goods from other countries as cost effectively as possible. Winning countries and companies will be those that master supply chain excellence. This requires a combination of excellent education and training, leading edge technology for both shippers and carriers and a strategy of being the masters of supply chain process efficiency.

4. Improve Transportation and Infrastructure

While supply chain strategy deals with the processes of moving goods globally, as quickly and cost effectively as possible, America’s infrastructure and transportation systems must also be Best in Class to make supply chain mastery a reality. Transportation excellence will require significant improvements in port, road and rail infrastructure, addressing the looming driver shortage problem, developing the most cost effective truck engines, reducing carbon emissions and a host of other related topics. If America can focus on supply chain excellence while running the world’s most efficient transportation network, this will create jobs, reduce costs and improve the profitability of companies in agriculture, manufacturing and the service industries.

5. Reduce Trade Barriers

It is in America’s best interests to obtain preferred trading partner status with many countries around the world. This allows American companies to reduce their costs of importing goods from other countries and reduce the costs of marketing their goods in foreign markets. This should be near the top of the list of whichever political party wins the upcoming election. Free Trade deals make it easier for American industry to succeed.

America is at a crossroads. It is going through a period of transition as it tries to reinvent itself. Political gridlock, the housing crisis and several other factors have held back the economy from moving forward at a faster pace. It is likely that whichever party wins the upcoming election will have its own set of tax cuts and revenue growth (or loophole removal) strategies. Nevertheless, if both parties can at least consider this business strategy blueprint and work with industry leaders to make this happen, America could likely achieve a brighter future, sooner rather than later.

In reviewing the 11th annual shippers choice awards in the current issue of Canadian Transportation & Logistics, I noted with interest that of the hundreds of carriers rated in the survey, only 57 were able to surpass the Benchmark of Excellence. The magazine presents a number of KPIs (Key Performance Indicators) and lists the scores of the top ranked carriers, by sector (e.g. LTL, truckload etc.), along with the Benchmark scores.

Unfortunately, too many trucking companies are viewed as commodities and don’t measure up. Being less positively viewed by shippers can make it difficult to achieve satisfactory pricing levels and as a by-product, satisfactory operating ratios. The data highlights the importance of customer engagement, of being superior at meeting shippers’ needs.

Many companies bring their leadership and management teams together on a quarterly or annual basis to craft/update their budgets, strategies and business plans for the coming year. In a recent McKinsey Quarterly report, prepared by consultants Tom French, Laura LaBerge and Paul Magill of McKinsey & Company, the writers suggest that many companies are fragmented in their approach to customer interaction and engagement. The consultants offer a six step plan for superior customer engagement.

1. Hold a Customer Engagement Summit

They suggest that the leadership teams in companies should hold a “customer engagement summit”. They argue that senior managers, from all departments of the company, should look beyond the basic interactions that customers have with various departments. The meeting should focus on developing strategies to motivate customers to invest in a continuing relationship with the company and its services. In other words, companies should implement strategies that move shippers along the customer loyalty continuum.

2. Focus on Three Factors

The writers outline three factors that should be addressed in formulating a customer engagement strategy. First the company should construct a vision for how it wishes to build relationships with its customers. Second, the company should craft an integrated and consistent strategy for interacting with customers across its various departments. For a trucking company, the customer interactions with Sales, Customer Service, Dispatch and Claims should be in harmony. Third there should be agreement on the components of the company’s customer engagement system that will be undertaken in-house or via its partners (e.g. beyond carriers, carrier partners, pick-up and delivery agents etc.).

3. Create a Customer Engagement Council

The consultants suggest that there is value in creating a continuing in-house forum to discuss and co-ordinate customer engagement throughout the organization. Of course, for those companies that truly wish to meet their customers’ needs, there is the option of creating a mechanism to obtain first hand input from their clients. This can be via a focus group, customer survey or a similar research tool to measure the impact of a company’s customer engagement strategies on its customers. The research results can be compared to other objective measurements such as Canadian Transportation & Logistics Annual (Canadian) Shipper’s Choice Awards Survey or Logistics Management’s (American) Quest for Quality Survey.

The authors write that “when conceived, constructed and operated correctly, these customer-engagement councils play a critical role in breaking the ‘silo’ mindset that diminishes the effectiveness of customer engagement in many organizations”.

4. Name a chief content officer

It is important to control the message that is sent to prospects and customers. The consultants suggest that the content made available to customers should be sophisticated and interactive. Since many trucking companies are still in their infancy in embracing social media, the appointment of a chief content officer, as a full time position, would be a bit of a stretch at this point in time. Nevertheless, there is value in creating a “go to” person for all customer communication to ensure it is consistent and meets the requirements of customers.

5. Create a Listening Centre

Being an effective listener is a key element of a sound customer engagement strategy. It is important to obtain and share information from the various “touch points” where customers interact with a company. At the same time, there is a requirement to at least monitor the relevant social media where a trucking company’s services, policies, and employees are discussed. While many trucking companies are still new to participating in social media, there is value in connecting to the most relevant blogs, forums and LinkedIn groups where trucking company issues are debated. Active listening allows companies to become aware of and address concerns, perceptions and problems articulated by prospects and customers.

6. Adjust your budget

The consultants suggest that companies often perceive the costs of performing these activities as an additional expense and unaffordable. They argue that the money to do these things is available but it is allocated to less productive efforts (e.g. trade journal or buyers’ guide advertisements).

Companies that actively engage their customers have the opportunity to differentiate their services and their brand. Improved customer engagement can lead to improved customer loyalty and revenue retention. Is your trucking company taking the necessary steps to top the list in the 12th annual Shipper’s Choice Awards Survey next year?

For over two decades the University of Tennessee has been conducting its Masters in Logistics research study. This year the study was undertaken in partnership with Con-way Inc., Ernst & Young, and Logistics Management. The U.S. based participants accounted for an estimated $30.1 billion in domestic transportation expenditures and over $20.5 billion in international transportation. Some 1,370 domestic and global logistics, transportation, and supply chain management professionals participated in the study. A summary of the report appears in the current issue of Logistics Management and is the basis of this blog.

The Masters of Logistics, those companies with annual freight spend in excess of $3 billion, represented 27.8 percent of the study participants. Medium-sized firms, with between $500 million and $3 billion in annual revenue, were 20.6 percent of respondents. The majority of respondents (51.6 percent) were smaller firms with reported annual revenue less than $500 million. The study participants came from a broad array of industries.

The results identify the emergence of an idea advocated for over a decade, and one which is being put into place by the Masters of Logistics: Use logistics and transportation services to differentiate yourself in the marketplace. As the study suggests, being able to deliver differentiated service is not possible without a value-creating partnership between the shipper and its strategic carriers; in turn, this has created a unique balance of power between the two parties.

Overall transportation spending as a percent of sales increased from 2011 to 2012. The data showed that companies that spent more than 5 percent of sales on domestic transportation increased year-over-year, rising from 21.2 percent to 26.7 percent in 2012. The key reason is the change in strategic direction for many companies. Following several years of intense cost cutting, particularly in transportation spending, the 2012 study results point towards companies shifting some of their focus to maximizing profitability and asset utilization. In the meantime, the percentage of respondents who reported that their primary objective is reducing costs has shrunk each of the past three years—findings that reveal that shippers again believe that you have to “spend money to make money”.

Being able to rapidly respond to changing customer requirements is becoming increasingly critical for both shippers and carriers. Today, more than ever, transportation plays a key role in helping companies attain that necessary level of responsiveness. The study indicates that some 71.6 percent of respondents are either capable or highly capable of adjusting transportation operations in response to changing conditions—and this ability to alter and adapt is greater for transportation than for logistics operations. ‘Total Delivered Cost” is becoming the value creation metric and competitive differentiator among carriers.

The need to create more value is reflected in how shippers are utilizing the various modal combinations. Truckload transportation still accounts for the largest share of the transportation budget. In addition to being highly responsive to changing conditions, it enables companies to address concerns about fuel costs that ultimately impact the cost to serve and the total landed cost. LTL accounted for 17.3 percent of the transportation budget in 2012, representing the second largest modal expenditure for firms.

However, this is a decline of 2.7 percentage points from 2011. The decline in LTL was the largest change reported for any of the modes for 2012. The study found that part of this decline in spending was used to boost the budget for private fleet. After a slight dip in the percent of the transportation budget in 2011, the expenditures for private fleets are almost on par with the 2010 level. Rail’s portion of the transportation budget remained essentially the same year-over-year while intermodal increased in 2012 accounting for 4.3 percent of total spend.

In the current shipping environment where supply and demand are in fairly close balance, there is a requirement to have a capacity strategy. Tommy Barnes, president of Con-way Multimodal mentioned that “companies, both shippers and carriers, are looking for a way to use the right capacity in the right geographical places. Using a multimodal strategy can fill that gap.”

Shippers are taking five actions to improve transportation efficiency.

• Shipment consolidation
• Core (strategic) carriers
• “Spot” bidding for freight
• Route planning
• Carrier tracking

Of the five, the study suggests that the most promising one is the use of core or strategic carriers. To be successful, both shippers and carriers must be fully committed to the relationship.

The efficiency initiatives suggest that shippers are making use of multiple methods to keep transportation costs in check. “Logistics and transportation efficiencies will help create a competitive advantage for small- and large-sized shippers,” says Barnes. “The efficiencies can drive logistics and transportation productivity and eliminate risk, thus allowing organizations to focus on customer/supplier value.”

Many factors have caused shippers to change the way they manage logistics and supply chain activities. The main influences according to the results from this year’s study are:

• ability to respond to changing customer requirements;
• energy (fuel) prices;
• cost to serve (specifically distribution);
• inventory reduction;
• and total landed costs.

The results of this year’s study suggest that the nature of the relationship between carriers and shippers has fundamentally shifted. Study participants are in strong agreement that being better than their competitors in terms of service would significantly improve their competitive position. There is also an awareness that while logistics and transportation service will differentiate them in the marketplace, it does not allow them to charge customers a premium price—hence the need for carriers and shippers to work together to create the former without incurring the latter.

The study results show an emerging trend by the Masters of Logistics to set themselves apart from their competitors through differentiated service. Transportation plays a critical role in enabling the firm to deliver differentiated service of which a prominent feature is being able to respond to changing conditions. As such, it positions transportation as a vital part of value creation. For more on the study, pick up the latest issue of Logistics Management