Despite being the incumbent President, Barrack Obama and his re-election team were faced with a tall challenge in trying to secure enough votes to keep him in office. After the Great Recession of the mid 2000s, a major stimulus effort and low interest rates were not able to revive the American economy. Entering the election, President Obama faced an economy with 7.9 percent unemployment and 23 million Americans out of work. He also faced a Republican candidate with a highly successful career in the private sector, something President Obama has not had.

Governor Romney did not help himself by staking out some policy positions to meet certain extremist elements of his party and by making some widely publicized verbal gaffes. Nevertheless, the economic headwinds faced by President Obama made this a tight race that could have gone either way. President Obama was able to gain re-election by 4 million votes. While some people will point to the gaffes and policy positions of the Republican Party, one of key reasons for Obama’s victory was the team of computer wizards who helped mastermind the victory.

“If you look at the numbers, we raised more money online this time than last time, had more donors, more volunteers, registered more people to vote online, and did all kinds of revolutionary stuff through Facebook and Twitter,” stated Teddy Goff, digital director for Obama for America in a recent article in Businessweek. Based on my understanding of the work they did, the Obama team was able to outperform the Romney team in three areas.

 Data Mining
 Marketing, particularly using social media marketing
 Face to face communication with committed and prospective voters

On the data mining front, the Obama team was able to develop highly detailed profiles of Democratic and Republican voters. In addition to the demographic profiles (e.g. Democratic voters are more likely to be women, African-Americans, Latinos etc.), they were also able to discern specific preferences when it came to such things as music (e.g. Democrats tend to like Smooth Jazz more than Republicans), dining out (e.g. Democrats prefer Red Lobster while Republicans prefer the Olive Garden) and reading material.

By identifying these voter profiles, they were able to better target their marketing messages and personal solicitation strategies. They were better equipped to focus on the prospective voters in the key counties in the “swing states.” They were more successful than the Republicans at contacting their most likely voting prospects through the appropriate social media and targeted advertising. “The biggest idea we brought to bear was integrating data and then acting on what it told us,’ says Dan Wagner, who ran the analytics team. “Through the single database we built, we could tie everything together and make an assessment based on all of somebody’s online activities, whether or not what we were doing was actually producing offline outcomes.”

“Of our turnout targets 29-and-under, half couldn’t be reached by phone, either because they didn’t have one or we didn’t have their number,’ Goff says. “Yet we were able to reach 85 percent of them through targeted sharing. Almost everyone is on Facebook.” He estimates that 5 million voters were contacted this way – more than Obama’s margin of victory.

The Businessweek article highlights that “what excited marketers about social media was that a friend’s endorsement was a more powerful, and therefore valuable motivator than traditional forms of advertising - - seeing somebody you know rave about Pepsi on his Facebook wall makes you more likely to try it than a newspaper ad would.” “The fundamental building block to targeted sharing is an overlay of the voter file and the social graph,” says Goff. “If you apply that same concept - - the social graph and the consumer data - - then almost any company stands to gain something.” The Obama team was also more effective at mobilizing volunteers in these locations to go out and meet these potential voters and secure their commitment to go to the ballot box.

What can truckers learn from the Obama team? While very few trucking companies would have the budget to undertake a data mining/sales and marketing initiative of this nature, there are still many powerful tools that are currently available to help achieve successful results.

When it comes to data mining, trucking companies with good computer systems can identify the services, lanes and yields on their customers’ business. If not, this should be a top priority to fix. This data can provide a wealth of information on shipper preferences. The data can also highlight services and lanes that are not matching up well against the competition. In addition, increasing numbers of trucking companies utilize customer relationship management (salesforce automation) software such as salesforce.com. These types of tools when related to a company’s own data on customers’ use of their services and competitors’ services, can yield very valuable insights into a customer’s preferences and decision-making processes.

It is always important to remember that it is not companies that make buying decisions but rather the people working for these companies. They have demographic and psychographic profiles just as do voters. These profiles can be gleaned through mining the data in CRM systems, focus groups and market research studies.

The next task is to successfully marshal this data so as to select the key verticals (e.g. food shippers that require a high level of customer service), customer data (e.g. participation in selected supply chain organizations that cater to the food industry) and personal data (e.g. college educated, younger, females, prefer to meet for lunch due to after-ours commitments etc.), that when taken together can provide a more focused sales and marketing effort.

Armed with this information, these prospects can be found in specific LinkedIn groups, on Twitter and in industry associations. They can be reached through the appropriate blend of social media, target marketing and focused sales effort.

The participation of Canadian and American trucking companies in social media was one of the items covered in the presentation by Lee Palmer, president of Palmer marketing at the 2012 Surface Transportation Summit. He noted that Canadian companies are not keeping pace with their American counterparts. He also highlighted that “in Canada, the small guys have turned to (social media) marketing more so than the big guys.” Hopefully the success enjoyed by the Obama re-election team, particularly in making such effective use of social media, will encourage business leaders in industry, particularly the trucking industry, to give social media more focus in their marketing strategies.

As the year 2012 draws to a close, it is time to reflect on the major transportation stories of the year. Here are the ones that stood out to me.

1. CP Rail’s Shareholder Revolt

CP Rail is a landmark Canadian company that has played an important role in the country’s history. It made a unique kind of history in 2012 when Bill Ackman, head of US hedge fund Pershing Square Capitol Management, led a shareholder revolt that resulted in the ouster of CP Rail’s president and several board members. While this was the major transportation story of the year, it resonated throughout the board rooms of North America as underperforming companies, in other industries, were served notice. Shareholder activism can be very powerful if a company’s leaders do not produce results that are in line with market expectations.

The latest chapter in the CP Rail story is currently being written as its new CEO, Hunter Harrison, the former CEO of CN Rail, is taking aggressive action to improve asset utilization and improve transcontinental intermodal service. As this blog was going to press, CP Rail announced that it plans to cut 4500 employees or roughly 28 percent of its workforce over the next three years. Stay tuned for the next set of chapters in the history of this famous Canadian company.

2. Wal-Mart’s 60 Foot Tractor-Trailer

Each year Wal-Mart blazes a new trail on the road to leadership in supply chain efficiency. In recent years Wal-Mart has led the charge on RFID, on packaging optimization and on a host of green initiatives. This year, Wal-Mart pulled a new “rabbit out of a hat” by developing a prototype 60 foot tractor-trailer unit that caught the transportation industry off guard. The prototype has 28 percent more capacity than a traditional 53 foot trailer and can carry 40 percent more freight when a “drome” or belly box that fills the wasted space between the trailer’s wheels, is included. The prototype will be trialed in Ontario, Canada where the retailer has received a permit to operate it. If successful, it may be rolled out in other provinces and U.S. states where permits can be obtained.

3. The YRC Recovery

The merger of two of North America’s best known LTL carriers, Roadway Express and Yellow Freight System, has produced nothing but heartache for its shareholders over the past several years as billions of dollars in losses were incurred. The YRC story took a new and positive turn in 2012. James Welch, reprising the role of Steve Jobs at Apple, has come back to YRC to lead the company back to stability. While YRC’s operating ratio is well below some of its Best in Class competitors, the company is at least producing a positive operating profit and seems to have returned to a focus on its core LTL business.

YRC’s survival is good news to shippers. The company’s collapse would mean the loss of a huge block of capacity and would likely result in major freight rate increases. If YRC stays in the LTL game, it keeps the other players on their toes and provides shippers with more options.

4. The Ultra Slow Economic Recovery

Unlike other economic recoveries, this one is particularly slow. As we approach year end, the United States still has an unemployment rate of 7.9 percent with over 23 million citizens out of work. The high unemployment and high debt levels have provided strong headwinds to the recovery and have had a direct effect on trucking firms throughout North America. Combined with a lack of consumer confidence, this has inhibited trucking firms from making investments in new equipment. It also limited the requirement for qualified drivers. A serious driver shortage did not take place in 2012. Ample truck capacity also helped put a lid on freight rate increases.

While there was some encouraging economic news this year (e.g. uptick in housing starts, improvement in household balance sheets), the ongoing debate over America’s debt levels and so-called fiscal cliff, is not helping spur growth. The modest economic recovery has been a major transportation story for the past couple four years and 2012 was not a breakout year.

5. Same Day Deliveries in the Retail Sector

The internet has transformed a number of industries such as books, electronics and music. Each year, many consumers are increasing their online purchases of a variety of items. To respond to customer demand for rapid delivery of their purchases, companies like eBay and Wal-Mart stores are putting pressure on their transportation partners to deliver customer orders on the day of purchase (e.g. same-day delivery). To compete, Amazon and Google are also trialing same-day delivery in certain markets. They are turning to local and major small parcel players such as UPS. Of course, these types of changes drive new processes, expanded warehousing capabilities and carrier start-ups. While some retailers appear to be “eating” the cost of transportation to grow their market share, watch this sector develop as it achieves more critical mass.

6. Trucking Takes to the Rails

The year 2012 was a “transformational” period for intermodal transportation as trucking companies, large and small, added intermodal service to their portfolios. Many truckers realized that long haul drivers are getting harder to find. As a result, they chose to focus their resources on short and medium haul lanes and shift their longer haul lanes to intermodal service. This led truckers to view the railroads as service providers rather than enemies.
J.B. Hunt has been the leader in migrating much of its full load business to intermodal service. Schneider National, another huge player, is now moving a third of its truckload business on the rail. U.S. Xpress and Swift Transportation are growing their intermodal programs. To support these initiatives, Norfolk Southern and CSX expanded their eastern U.S. networks to handle increased volumes. To further bolster their service, the railways have been offering “expedited” rail service on distances less than 1000 miles and supplying 53 foot domestic containers.

7. CSA

Compliance, Safety, Accountability (CSA) is a U.S. Federal Motor Carrier Safety Administration (FMCSA) initiative to improve large truck and bus safety and ultimately reduce crashes, injuries, and fatalities that are related to commercial motor vehicles. Rolled out in December 2010, it introduced a new enforcement and compliance model that allows FMCSA and its State Partners to contact a larger number of carriers earlier in order to address safety problems before crashes occur.

The FMCSA implemented a number of improvements to its CSA safety enforcement program in 2012, including dropping the Cargo-Related BASIC and adding a new Hazardous Materials BASIC that is expected to put more scrutiny on carriers hauling hazmat. The improvements, which were initially announced last August, include changes to a number of the Behavior Analysis and Safety Improvement Categories that the agency uses to keep track of carrier performance.

Announcing the changes, agency administrator Anne Ferro said CSA is an effective program that has had a positive effect on safety. She cited an 8% decline in violations at roadside inspections, and a 10% drop in driver violations per inspection in the last calendar year. "These represent the most dramatic decrease in violation rates in a decade," she said.

8. Natural Gas hits Energy Utilization Milestone

One change went unnoticed this year by most shippers and carriers in the United States. In April 2012, the amount of electricity generated by natural gas-fired power plants equaled that produced by coal-fired plants for the first time, with each accounting for 32 percent of total U.S. power generated. This is the lowest coal percentage since the 1970s. The sheer abundance and low cost of natural gas is making it an attractive option as an alternative fuel for trucks, and potentially for locomotives and container ships.

While the percentage of natural gas as compared to diesel fuel is very small at present, the conversion process could be driven by early adopters seeking to secure cost savings. Of course, the widespread use of natural gas would require major investments in infrastructure. Nevertheless, this year’s milestone event and the willingness of selected truckers (e.g. Robert Transport) to purchase and trial LNG vehicles suggest that this is a trend that needs to be followed closely in the years ahead.

9. Freight Bids become a core Procurement Tool

In 2012, freight bids became so prolific in carrier procurement/rate negotiation exercises that they were employed by shippers with as little as $25,000 in freight costs per year. The bid process has had multiple effects on the transportation industry. Done well, they force shippers to package and leverage their high volume freight to achieve maximum savings in freight costs. They provide a structured, methodical way to procure freight services. Done poorly, they are a nuisance to carriers since poor data and a weakly constructed RFP are a waste of time and produce rates that are not in line with business volumes or the shipper’s freight characteristics.

Conducting FRPs has become an industry all to itself. There are companies that provide the software to run the bid events. There are companies that specialize in the design and execution of freight bids. The freight bid process, for some companies, is replacing the normal sales process. Rather than maintain relationships with carriers across the various modes, shippers in downsized companies, can use the RFP process as their annual mechanism to secure and negotiate rates.

10. Forward Thinking Carriers Invest in Technology

Financially stable carriers seeking to gain competitive advantage invested in technology in 2012. This included fuel efficient equipment, testing LNG or hybrid equipment, improved driver screening and training. Creating and growing their brokerage/logistics businesses was also a trend. Larger carriers made investments in technology beyond basic load matching services to increase their margins. Transportation management as compared to basic freight brokering continues to evolve. Using a managed transportation management system (TMS), companies can provide contract management, load optimization, freight auditing and payment. The top carriers are using yield management tools to rank their clients on profitability and tailor rate increases to specific shipper requirements.

As 2012 comes to an end, I thank all of the readers of this blog for their support and feedback during the year. I welcome suggestions on blog topics. Happy Holidays!

The New Year will be an exciting one that will likely be shaped by the financial talks currently taking place in Washington. Here are some of the key trends to watch for in the coming year.

1. The “Fiscal Cliff” Crisis may determine the level of the Economic Recovery in 2013

As the year comes to a close, America is facing a number of economic headwinds (e.g. high unemployment and underemployment, mismatch between job skills required/positions available) and tailwinds (e.g. possible rebound in the housing sector, potential revival of domestic manufacturing, boom in energy production, improving household balance sheets). Senior government leaders in Washington are trying to solve America’s so-called “fiscal cliff” that is casting a dark shadow over the economy. The resolution of this crisis may go down to the wire and will likely set the tone for the economic recovery, or lack thereof, in 2013.

Should America’s leadership come to a good understanding on tax increases and spending cuts, this will place the United States and probably Canada on a more solid path to an economic recovery, even if 2013 is not expected to be a year of robust growth. This will help shippers and carriers in all sectors of the economy. A failure to reach an agreement, a weak agreement or an agreement to push the problem down the road, will put a damper on discretionary spending, consumer confidence and possibly shove North America and much of the world into recession.

2. America’s Energy Renaissance/ Fracking comes to the USA

America is going through an energy renaissance. Induced hydraulic fracturing or hydrofracking, commonly known as fracking, is a technique used to release petroleum, natural gas (including shale gas, tight gas, and coal seam gas), or other substances for extraction. Fracking is allowing America to produce increasing supplies of energy just as the Middle East, the world’s leading source for petroleum, has become increasingly volatile.
Since the transportation industry is such a large consumer of petroleum products, these developments will have a profound effect, over time, on the types and volume of energy consumed by this sector. Of course, obtaining this energy comes at a price, a higher price than the “cheap oil” America has been accustomed to buying. With natural gas utilization, hybrid engines and electric powered vehicles in truck fleets still many years away, America will continue to buy petroleum based products. The good news is that fracking will provide a more stable source of supply. But high petroleum costs and high fuel surcharges will encourage shippers to place more focus on packaging optimization, improved cube utilization and near-shoring to keep freight costs in check.

3. Rails maintain focus on Intermodal

Intermodal volumes have grown steadily over the past decade. A recent JOC article suggests that this growth could moderate as truckers fight back to protect their market share. However the railways are relying on intermodal service as a growth engine. Coal volumes, a huge rail commodity group are expected to decline as the demand declines in overseas markets. The huge CAPEX incurred by the class 1 railways over the past 5 years requires these companies to earn a satisfactory return on their investments. All of the railways including CP Rail are developing and implementing intermodal growth strategies. Many truckers, both large and small, that are facing shortages of qualified drivers, particularly for long haul movements, are joining the intermodal party. The New Year should see continued growth from intermodal service.

4. Freight Brokerage Goes through Shakeout/Transformation

A major trend over the past decade has been the proliferation of the freight brokerage business. Entrepreneurs with a basic understanding of the freight business and trucking companies looking for a non-asset based way to increase revenues and profits, have been attracted to this sector. The money-making concept seems so simple. You find a shipper with a load, find a trucking company with low rates to move the load, add a markup and presto, you have a new source of profits.

Freight brokerage can be a great business in certain circumstances (e.g. high demand/high supply coupled with good customers and good technology). The trouble is that we are not living in a high supply/high demand time and the market is a bit saturated. Many companies that do not provide value are likely to be part of a shakeout or consolidation. The leading freight brokers are adopting a Freight Management customer engagement model as compared to a Freight Brokerage transaction model. Watch for this industry to consolidate as customers and the industry leaders raise the bar.

5. Risk Management Becomes a Major Focus of Shippers and Carriers

Over the past few years, the world has faced some unique challenges. Global warming is causing unusual weather and some very difficult storms. Whether you look at the Tsunami in Japan, Superstorm Sandy or severe weather in other parts of the world, these “Black Swans” are causing nightmares for supply chain professionals and transportation company leaders. In addition, the world is facing political unrest and the menace of very dangerous weapons and terrorism. Risk Management is going to receive more serious attention in the years ahead as companies commit to evaluating various threats in their supply chain planning and putting contingency plan in place.

6. Industry leaders need to become more Innovative.

Many shippers and carriers have learned and implemented Freight Management 101. They have done the basics by acquiring TMS systems, rationalizing their networks, implementing dock appointment processes, conducting RFPs and becoming Smartway carriers. In other words, they have gleaned as much as they can in cost savings through the various traditional and available tools.

To continue to achieve cost savings in transportation, industry leaders must become more innovative. Running an annual freight bid will result in the law of diminishing returns. The focus must now shift to the overlooked and underappreciated areas of transportation – packaging optimization, integrated yard management, new types fleet equipment with expanded capacity (e.g. Wal-Mart’s 60 foot prototype tractor-trailer), business intelligence and compliance management. Innovative business practices will help companies keep their supply chain costs in line.

7. Dedicated Transportation

Truckload capacity constraints will continue due to an aging truck fleet, the higher cost of new trucks and trailers, significant safety regulatory changes and a challenging driver market. Concerns over the speed of the economic recovery will continue to restrain truckload carriers in hiring drivers and adding equipment. Truckload carriers will continue down the path of diversification that has been blazed by JB Hunt. One of the most attractive areas of opportunity will continue to be dedicated transportation.

The trend among retailers such as Wal-Mart and Home Depot to take greater control of their supply chains has intensified demand for dedicated carriage. Shippers looking to reduce cycle times and get products closer to customers are building regional distribution centres that are easily served by dedicated fleets. By offering consistency, flexibility and reliable contingency planning, dedicated carriage is a natural fit.

8. Shippers Need to Beware of Disguised Rate Increases

Transportation companies have not hidden the fact that they need rate increases to continue to invest in their businesses and improve their profit margins. However, in many cases they have not been totally forthcoming when it comes to the level of their rate increases. The so-called GRIs or general rate increases of X percent are often misleading or disingenuous. Shippers that move significant volumes of small parcel or LTL freight need to apply strong analytical tools to proposed carrier increases.

Carrier base rates vary. Rate increases may vary by weight break. A portion of some fuel surcharges may be added to the base rate. Accessorial charges may contain higher than advertised rate increases.

The message to shippers is Caveat Emptor - Buyer Beware. If you have volume, particularly small parcel volume, if you don’t have good analytical tools and you don’t have a good understanding of how small parcel or LTL rates work, seek professional help before you make any commitments. The advertised rate increase and the precise impact of a rate increase on specific shippers may vary significantly.

9. Retail Transportation will continue to Evolve as Internet Shopping becomes more prevalent

The retail sector remains one of the most vibrant and innovative areas of the economy and will continue to evolve in 2013. This will have a profound impact on transportation. As reported in the Top Stories of 2012, there are variety of new types of retailers, new types of transportation services and new types of transportation companies that are appearing to meet these requirements, whether they are for same day delivery, utilizing retail outlets as mini-DCs or the myriad of other service requirements that continue to emerge.

10. Transportation Technology will Reshape the Transportation Industry

Smartphones and Tablet computers will become increasingly important elements of transportation systems as PCs, notebook and netbook computers decline in importance. The proliferation of these devices is being enhanced by the rapid development of useful applications. These devices will transform freight transportation on the dock, in the DC, in the store and in the truck.

If you see any trends that I may have missed, please share them with the group. I wish all of you a successful, prosperous and healthy 2013.