There's one thing everybody can agree on: it's getting harder to find atruck to move your freight these days. As the economy gathers steam, factories across America have been pumping outwashing machines, kitchen cabinets andauto parts at a furious pace. But at thesame time, industry consolidation and asevere shortage of drivers have conspiredto limit, if not shrink, truck capacitynationwide. As goods pile up on shipping docks, it's fast becoming clear that U.S. corporations face a full-blown business crisis. What's less clear is what theyand their logistics departments can do about it.
One thing they can't afford to do is stand by and hope for a return to better times. There's no relief in sight. True, the crunch eased somewhat following the peak holiday shipping season. But Mark Rourke, vice president and general manager of brokerage for Schneider National, reports that the manufacturing boom and driver shortage "are continuing to create challenges for large and small carriers. That has not changed," he says, ìnor do we see that changing." And in any event, the dynamics of the trucking industry appear to have shifted in ways that make it unlikely we'll see a return to the kind of buyer's market that dominated most of the last two decades anytime soon.
It's not that carriers aren't doing what they can to ease the crunch. Truckers are taking a variety of steps internally to get more out of the assets they have, as well as adding capacity where it makes business sense to them.
Some are relying on technology. "The only way to do it is with a tightly engineered network," says Doug Duncan, president and CEO of FedEx Freight. "We are absolutely dependent on technology to help us."
Peter Latta, president of A. Duie Pyle, a regional carrier based in New Jersey that has both LTL and truckload operations, says his company will roll out a dynamic route planning tool this summer for its pickup and delivery drivers. "I think it will improve operations by limiting miles and making the driver more efficient."
Others are making efforts to create physical capacity. One company that has continued to expand, adding trucks and new facilities, is Con-Way Transportation, which operates three large regional LTLs with coast-to-coast coverage. Edward Moritz, vice president of marketing for Con-Way, says that outside of the two years of the most recent economic downturn, Con-Way has invested heavily in expansion and continues to do so. Con-Way also launched a truckload operation in February to buttress its long-distance linehaul operations.
Some are even taking the acquisition route. Pitt-Ohio Express, a Pittsburgh-based regional LTL carrier, recently acquired interest in a regional truckload carrier, ECM. Geoff Muessig, vice president of sales for Pitt-Ohio, says the goal is to provide greater flexibility for large shipments and to supplement the LTL linehaul operation.
Although those rate hikes may be bolstering carriers' profits, they're also offsetting higher costs. Not only are driver wages up, especially among truckload carriers, but other costs—fuel and insurance, in particular—show little sign of abating. At the same time, many truckload carriers have taken productivity hits as a result of hours-of-service regulations. (Those are still up in the air, but no one is betting that they're going to provide additional flexibility.) Carriers are also shouldering the costs of complying with new security rules and the very real costs of road congestion in major corridors.
Shippers have pretty much reconciled themselves to paying more for freight. "Our transportation customers are resigned to taking price increases that they never would have considered before," says Bruce Abels, president and COO of Saddle Creek, a third-party logistics service provider. "They know every cost consideration—be it fuel, insurance or driver costs—is going in the wrong direction. The customer knows the free ride they've been getting in the transportation sector is definitely coming to an end."
Though shippers may say they're resigned to higher rates, their actions would indicate otherwise, says Michael Regan, CEO of TranzAct Technologies. Regan, who often speaks to groups of shippers, makes it a practice to ask his audiences how many budgeted for transportation costs to rise by more than 5 percent over the past year. Usually, he says, few people raise their hands. When he asks how many saw increases of 5 percent or more, most hands in the room go up. Yet, he says, few of the shippers he talks to are planning for a similar run-up in spending this year. Does that mean they're optimistic? Perhaps, he says. But a better word might be shortsighted.
Squeezed at both ends
The fact remains, however, that it's shippers who are feeling the squeeze right now. The capacity crunch notwithstanding, they're still feeling corporate pressure to accelerate cycle times—often across long and complex sourcing networks—and reduce costs.
"Our customers are trying to squeeze the supply chain for all it's worth," says James Welch, president and CEO of Yellow Transportation, a major national LTL carrier. Welch notes that it's no coincidence that the expedited portion of Yellow's business is growing faster than its regular LTL business. The extra cost of expedited delivery is often cheaper than the carrying costs for holding inventory—or the chargebacks for late deliveries.
Doug Duncan of FedEx Freight agrees. "Our perception is that the market is embracing fast cycle logistics more and more every day," he says. "What customers want is speed and reliability. They want certainty."
It's safe to say that for shippers, it's anything but business as usual right now. Given the new reality, Michael Regan, CEO of TranzAct Technologies, whose company markets a variety of transportation and logistics software and offers freight payment services, urges shippers to look hard at the way they do business with carriers. "You really need to step back and challenge your assumptions," he says.
One of those assumptions, he says, is that the lowest available rates are those negotiated through core carrier programs, in which shippers offer the bulk of their freight to a select group of carriers in return for favorable freight rates. "We've seen proof that while there are still some advantages to leveraging purchasing power, it's not anything like it was in the '90s," he says. "Now the issue you're trying to get at is running your most effective and efficient business."
That may also mean doing things that are counterintuitive. For example, Regan urges shippers to consider whether it might make sense in some cases to increase inventory levels. "The concept everyone has been talking about is that ëless is more.' But one thing we're seeing is that 'less is more' only if you can operate without incurring significant problems." You have to look at the whole procurement and inventory management process.
That opinion is shared by Duncan of FedEx Freight. "It is not productive to look at one piece of the supply chain," he asserts. "I could tell you not to make delivery appointments and take delivery when we back up to dock [as a way to give the carrier flexibility]. That's all well and good if you just look at the part of the supply chain between me and my customer. But that may suboptimize the DC resources. We have to understand our role in the supply chain. We have to look at improvement in the total supply chain."
Thinking outside the, uh, box
As for other options open to shippers with freight to move, Regan says alternatives include reviving or expanding a private fleet, paying for dedicated carriage, or looking into pool distribution or intermodal service. He acknowledges, however, that it's tough for logistics departments hit hard by layoffs in recent years to summon the talent needed to explore all the options. "I have one customer who used to have 25 people in logistics and transportation," he says. "It went to 13, then to four."
In fact, those staffing shortages have prompted fresh interest in brokerage services. Rourke of Schneider National's brokerage operation says he's found shippers are open to ideas that they would have rejected only a short time ago. "For the last 10 percent of volume, customers are trying to manage 50 carriers," he says. "Do you want to manage that level of complexity, or are you better off having a large aggregator?" In other words, by using a broker, the shipper can deal with a single business, which in turn manages the full array of smaller carriers.
Still other shippers are taking more extreme steps to assure that they have the trucks they need. Scott Wolf, vice president of corporate services for Averitt Express, which has LTL, truckload and dedicated operations, notes that some larger customers are committing to capacity, reserving as much as they believe they will need, and paying for it even if it's unused. "They're asking us to commit drivers to them and paying the tab for that utilization," he says. "We're turning into their dedicated fleet."
Wolf tells of one large customer that's attempting to set up a cooperative agreement with another shipper that has substantial freight moving in the opposite direction—one has a lot moving into Nashville; the other, a lot out. "They're trying to improve utilization. What we're seeing is shippers getting really creative."
Spotlight on collaboration
But as more shippers are learning, it's one thing to locate a truck; it's another to persuade the carrier to accept your freight. Now that they can afford to turn away business, carriers have gotten downright choosy. They're no longer accepting freight that's not profitable for them to haul. Nor are they willing to put up with the inaccurate documents, poorly staged freight and shipping dock delays that shippers got away with in a buyer's market.
What can shippers do to make their freight attractive to carriers? The key is getting their own operations in order, says Latta of A. Duie Pyle. "We believe it would be helpful if transportation buyers had the processes in place to quantify .. 'transportation value' by factoring in all the costs presented/imposed by the carrier, including price, freight claims, late/inconsistent service, invoicing accuracy, information access cost and ease of use (i.e. staff cost of multiple shipment tracing phone calls and return call delays versus real-time, in-transit Web site shipment visibility ...)."
He says that many shippers have recognized just that. "The trend I've seen is improved collaboration between the purchasers of transportation services and the providers, driven by common recognition of tightening capacity, especially driver availability," he says. "We find ourselves working with customers, so that if there are adverse circumstances with one of their customers, they are more willing to get involved to remediate problems." For example, he says, his customers will work with the carrier to reduce driver delays at customer docks, a potentially major productivity killer.
Welch speaks for many truckers when he emphasizes that the flow of information from shipper to carrier is crucial to improving the freight system's efficiency. He cites inaccurate bills of lading as one particularly vexing issue. "It's amazing the number of times the bill of lading either has the wrong address or the wrong ZIP code, or the weight or description is not right," he says. "That causes us a lot of headaches.
"The other thing is, when you say the freight is going to be ready, it needs to be ready."
Duncan makes a similar argument. "We can no longer wait for the freight to show up," he asserts. "We have to know when it's coming." He says electronic transmission of bills of lading has been a big benefit for FedEx. But he acknowledges that many shippers are unlikely to have the technological savvy to manage those transmissions.
For that reason, FedEx has outfitted drivers with handheld devices they can use to capture data upon pickup. That information is uploaded to the freight terminals, allowing load and route planning to take place before the trucks return at night.
Muessig of Pitt-Ohio Express says shippers that are willing to collaborate with carriers may even see returns in the form of lower rates. "One of the things we communicate to all our customers is that we're dispensing with general rate increases. We're looking where possible to get rate stability, even rate reductions, if we can take cost out of the business."
Once again, one of Pitt-Ohio's particular goals is to work with customers to get early notice on shipments to help dispatchers plan the night's linehaul operation. "For those customers providing projections, we're minimizing their rate increases and in some cases forgoing them," Muessig says. "We recognize orders are cancelled or things change, but if we get 90 to 99 percent certainty, that can go a long way to improve linehaul efficiency."
He emphasizes the importance of two-way communication. "The key is for shippers to have IT resources to make information available to carriers," he says. "We see shippers that want information from carriers, but they are less willing to share with us. That's an opportunity moving forward."
Mark Walker, vice president of transportation for C.H. Robinson, which offers both truckload and LTL service, adds that shippers that do a better job of forecasting what they will require will have greater success getting the trucks they need than those that make calls at the last minute.
That's the core of the issue in the tight market. "If you're normally moving 10 truckloads a day and now you want 30— that's not happening today," Walker says. "Carriers are demanding that shippers do a better job of planning. With capacity fully utilized, you cannot expect to find another truck a couple of miles away."
Gartner, Inc.