Logistics Management Solutions Blog

UPS started it and others followed.

Estes Express just announced it will raise less-than-truckload (LTL) rates by an average of 6.9 percent. They are the latest in a line of LTL carriers who are trying to keep pace with rising costs by implementing a general rate increase (GRI).

Identical 6.9 percent increases took effect on Monday, August 1, for LTL carriers UPS Freight, YRC Worldwide and Con-Way Freight. ABF Freight System’s 6.9 percent increase took effect a little earlier – July 25. Estes Express’ increase kicks in on August 8.

These GRIs only apply to non-contract freight, which is a small percentage of cargo hauled by carriers. However, the increases come into play during contract talks and ultimately raise pricing for most shippers.

In a letter to customers, Paul J. Dugent, vice president of pricing for Estes Express, echoed the sentiments of his fellow competitors who raised their rates before him.

“Equipment costs have skyrocketed in 2011, spurred by higher prices for raw materials such as metal, lubricants and rubber,” Dugent said.

It reminds me of a quote I read in a recent article in Logistics Management magazine. Lana Batts, a partner at Transport Capital Partners said, “Carriers today are not interested in adding capacity, because rates today are about equal to what they were in 2006. The price of a truck has gone up from $80,000 to $120,000 and fuel is up, too. Everything is more expensive, and the industry is still charging 2006 rates. It is not sustainable. Trucking is not as easy of a business to get into as it was before.”

Industry consultants contend that the increases are a good thing; LTL carriers need to become more profitable. We know what happens when carriers don’t make money – they close their doors. Fewer carriers lead to less capacity and less capacity leads to significant rate increases.

To a shipper’s ears, these GRI announcements are a bit painful. But I believe it’s important to address the issue now rather than down the road when the stakes, and GRIs, could be higher.

There are three things you have to do to run a successful business: you have to pay your bills; you have to invest; you have to grow.

Why should running a country be any different?

Right now congress is wrangling with the debt ceiling in the shadow of a looming deadline: August 2.  The U.S. has reached its debt ceiling and if it’s not raised, we could find ourselves in a potentially catastrophic economic crisis.  Not raising the ceiling means
our country would default on loans, in other words, not pay our bills.  And what happens when you don’t pay your bills?  Your credit rating suffers and your interest rates rise.

While congress fervently debates over what needs to be done to raise the ceiling, let’s look at the next basic principle of fiscal success: investing.  Obama is hoping for a “grand bargain” that he believes could save up to $4 trillion over the next decade through various tactics like spending cuts, Medicare and Medicaid reform and tax increases for Americans earning more than $250,000 annually.

In a press conference on Monday, Obama said that such a deal could pave the way for investments, including an infrastructure bank to fund transportation projects.  Being in the transportation industry, we understand the importance of such an investment.  And while both parties are looking to make budget cuts, Obama remains firm on his stance to increase funding in this sector.  I applaud this.

Last week House Republicans proposed a six-year, $230 billion highway-funding transportation package, which would cut current funding and is a stark contrast to the $556 billion the White House is looking to slate for highway projects. (See story)  In fact, the American Society of Civil Engineers says over the next decade the U.S. needs to invest $1 trillion beyond current levels just to maintain and repair our existing infrastructure.

But it’s not about maintenance; it’s about growth, which leads us to the third principle.  Investments, such as transportation projects, increase jobs and stimulate the economy.

As Obama recently pointed out, the housing market bust left one million construction workers unemployed and America needs rebuilding.  And without maintaining and
advancing our infrastructure, how can we compete in global economy that is becoming
increasingly competitive?

I realize raising the debt ceiling and managing the national budget are complicated issues that entail too many nuances to address in a single blog.  However, I believe revisiting the
basics can help us as we navigate complex issues.  Pay. Invest. Grow.

What do you think?

You may catch a few co-workers trying to leave early the office a little early today – maybe you’re one of them. For many of us, the three-day weekend is an oasis amongst the flurry of cubicles, e-mail, voicemail and meetings. So who can blame us for wanting to get there a little faster?

But how are you getting to your oasis – are you driving? If you’re hitting the road, you won’t have to take as much cash as you may have expected, but more than you did last year.

On a national average, gas prices fell 11.1 cents to $3.849 this week.  It’s the second straight decline and the lowest level we’ve reached in five weeks.  Last Memorial Day weekend, however, gasoline averaged less than $3 a gallon.

One thing that I appreciate about Memorial Day weekend is that it puts fuel prices in headlines, regardless of whether they are up or down.  Being in the transportation industry, fuel prices are always making headlines.  However, this holiday weekend gives everyone pause and turns our attention to fuel projections for the upcoming summer
months.

So what can we expect?  Last month the U.S. Energy Information Administration (EIA) released the April 2011 Short-Term Energy and Summer Fuels Outlook that includes detailed forecasts for the summer months, which it defines at April through September).

If you want to dig into the details, and you’re a fan of graphs, check the EIA’s presentation.  Otherwise, here’s the CliffNotes version:

Average diesel fuel price projected for Summer 2011 = $4.09 (vs. $2.98 last year)

Average gasoline prices projected for Summer 2011 = $3.86 (vs. $2.76 last year)

Based on consumption, growth, disruption of the Libyan oil supply and overall unrest in the Middle East and North Africa regions, the EIA expects oil prices to average about $110
per barrel compared to last summer’s per barrel cost of $77.

However this Memorial Day weekend, high fuel prices are not keeping Americans tethered to their backyards.  According to AAA, 34.9 million Americans will travel 50 miles or more from home this weekend.  Compared to last year, this represents an increase of .2 percent  – or 100,000 travelers – when compared to the 34.8 million people who traveled during the 2010 Memorial Day weekend.

If you are one of the 34.9 million Americans, I wish you safe travels.  And, if you’re anxious to start your journey, go ahead a leave a little early today.  (I won’t tell).

I have always believed that the transportation industry is ideal for those who like a challenge and if you are one of those people, now is your heyday.

Diesel fuel is rising and truck capacity is tightening. We send industry stats and updates to our clients on a regular basis, and I have found that many people are surprised by what’s happening in the marketplace.  And once they’ve grasped the situation, the big question surfaces: What can we do about it?

But first, here’s a quick overview of what is happening in the marketplace: 

Diesel rises

According to the Department of Energy (DOE), diesel is averaging $4.078/gallon nationwide.  This is the first time the national average has reached $4/gallon since 2008 and prices are expected to remain over $4/gallon this summer.  At this point, the DOE estimates diesel to average $3.98/gallon this year, versus the $2.99/gallon average we saw in 2010. 

However, the predicted average increases on a regular basis as oil prices continue to climb.  Between mid-February and April alone, oil has risen from $85 to $112 a barrel.

Capacity closes in

Here’s some good news – the economy seems to be improving as freight volumes are increasing.  However, we are still experiencing reverberations from the recession when many trucking companies went bankrupt or did not invest in additional equipment.  Now, to put it very simply, we have more freight and less trucks.

We are seeing an uptick in all modes, including intermodal, but truckload is the frontrunner.  According to the Longbow Research Truckload Barometer, which measures available freight against available equipment and climbs as capacity contracts, truckload is up 46% year-over-year.  What’s more remarkable is that the barometer has risen 47.4% since January.

Less-than-truckload (LTL) capacity is tightening, too.  Stifel Nicolaus research firm predicts 2-3% growth this year however, this is likely to rise as truckload tightens further and more shippers look to LTL.

Capacity seems to be the tightest in the southeast where resources have become limited.  The produce season is here and many carriers have said they are not getting enough inbound freight to counteract their outbound activity.  According to TransCore data, the southeast has an average of 5.7 or more loads for every available truck. 

And now the big question:

What can shippers do?

Go intermodal

By switching modes (truck to intermodal or truck to railcar), you can mitigate the effects of both rising diesel fuel costs and tightening truck capacity.  Rail is also a less expensive mode of transportation and is more environmentally friendly, too. 

Optimize, optimize, optimize

One of the most popular and basic forms of freight optimization is LTL consolidation – combining LTL freight into less costly TL movements.  However, with TL capacity shrinking, this may not be the best option for you.  Instead, you can create less costly routes by stringing multiple TL moves into continuous routes with multiple stops.  This reduces deadhead charges and, better yet, creates carrier friendly routes.  As capacity tightens carriers can afford to pick and choose business.

Share with others

It’s about sharing resources when resources are limited.  Long before capacity concerns emerged, we launched a cross-shipper collaboration program that proves especially beneficial in times like these.  We leverage our diverse client base of high volume shippers to create optimized ship plans.  For example, we can combine TL shipments – from different clients – into continuous move tours.  If you work with a 3PL that does this, ensure they have the technology to safely match compatible freight and the ability to keep your freight data confidential.

Be carrier friendly

As I mentioned before, carriers can afford to be choosey so aim to have the business they want.  In addition to creating carrier-friendly routes (continuous moves), work with them at the dock level by expand your shipping and receiving hours, loading quickly and dropping trailers when possible.  And don’t forget the financial side – create and adhere to reasonable payment terms for all of your carriers.

Plan ahead

The last piece of advice simple but not always feasible: Book your shipments as early as possible.  Ideally, TL lead times should be 3-5 days (or more) to give you the breathing room you need to ensure coverage.

Having options is always a good thing. Whether you’re talking about investing your money, buying a car (heated seats please) or deciding which movie to watch (thank you NetFlix). Why? Because having more options gets us closer to what we want.

The logistics industry is no different and this week LMS expanded its options.

On Monday, we acquired McCann’s Piggyback Consolidated, Inc., which is an Intermodal Marketing Company (IMC) based out of Fenton, Mo. By buying this IMC, we now have access to all Class 1 railroads. This gives LMS more opportunities for growth but more importantly, it gives our clients more modal options.

Read the headlines of a few transportation magazines and a few things become clear: diesel fuel costs are on the rise, truck capacity is tightening and shippers are seeking greener solutions. So, shippers need options. Enter intermodal.

Intermodal combines truck and rail transport to reduce costs, reduce greenhouse gas emissions and take freight off the road. In fact, a double-stacked train is equal to 280 trucks. And, rail is three times more fuel efficient than its over-the-road counterpart. The American Association of Railroads estimates that if an additional 10 percent of truck volume were shifted to intermodal, the annual savings would reach one billion gallons of fuel.

Sounds like a good option to me.

To bring the intermodal option into focus, we are combining our freight brokerage operations (Dedicated Services) with the McCann’s acquisition to form a new company, Freight Management Solutions (FMS). Dedicated Services and McCann’s staff members will now operate as the FMS team. These logisticians will work with clients to help them choose the option that is best for their freight needs.

You’ll be hearing more about FMS in the near future. And, I guarantee you’ll be hearing more about intermodal benefits as market conditions change and evolve. Just remember, you’ve got options.