Logistics Management Solutions Blog

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.

A few years ago one of our largest clients came up with a great advertising slogan: “We don’t make a lot of the products you buy. We make a lot of the products you buy better®.” Due to the campaign’s wide reach, I’m sure you know the client – chemical giant BASF. The BASF name may not be part of consumers’ daily conversations, but within the consumer world, BASF is ubiquitous. Their products can be found in cars, golf clubs, safety seats and even winter coats…the list is endless.

Chemicals are part of our everyday lives and every day LMS helps chemical companies move product through the supply chain. As you can imagine, moving this class of freight entails adhering to a litany of government and client regulations and requires specialized training for our transportation planners. As a non-asset-based 3PL, we don’t own trucks or hire truck drivers, but we can make a difference when it comes to helping to ensure the safe transport of chemicals.

I can tell you that LMS is committed to protecting people, property, and the environment and, as guardians of the supply chain, we are committed to monitoring and managing safety and security in all aspects of supply chain operations. But as the adage goes, actions speak louder than words. That’s why in 2005 LMS became a Responsible Care® Partner of the American Chemistry Council (ACC). And, as part of the partnership program, LMS implemented the Responsible Care Management System® and recently received third party certification to the RCMS (see the news release).

What is Responsible Care? Formally speaking, it is a global initiative where chemical companies, and their supply chain partners, share a commitment to advance the safe and secure management of chemical products and processes. Responsible Care is the tool that LMS uses to effectively establish objectives and processes that deliver the results that our clients expect and the public deserves.

So what does this really mean for LMS? As a Responsible Care Partner, we go far beyond what is required of a 3PL that manages chemical transport. We measure and report our Environmental, Health, Safety and Security (EHS&S) performance to the ACC and follow the RCMS, which is a rigorous means of continuously improving our performance in seven areas: community awareness and emergency response; security; distribution; employee health and safety; pollution prevention; process safety and product stewardship.

In addition to human health and the environment, the Responsible Care program addresses the security concerns of a post-9/11 world. In 2001 the ACC adopted the Responsible Care security code that has been recognized by federal and local government agencies and has been used as a model security program for other trade associations. The code helps ensure the protection of people, products and property.

But there’s more. As a by-product of implementing the RCMS program, LMS and its clients benefit from continuously improved operations. The RCMS is based on effective and proven management practices and embraces a plan-do-check-act philosophy. This means we are constantly checking our performance and finding ways to operate as safely and efficiently as possible. And as any business professional knows, efficiency = time and cost savings.

The benefits are immeasurable, which is why we are proud to be a Responsible Care Partner of the ACC. At LMS, we realize we play a vital role in the chemical supply chain. In fact, maybe we should change our slogan: “We do not make the chemicals you transport. We help make the transport of chemicals safer.”

The FMCSA designed the imminent CSA 2010 initiative to put some teeth into its safety enforcement efforts, but some motor carriers fear the new program, at least in its current form, may gnaw away at the vitality of the freight industry. 

As you know,  CSA 2010 entails the Safety Measurement System (SMS) which will replace SafeStat; CSA 2010 is slated to roll out nationally 12/12/2010.  However, on Tuesday, the National Association of Small Trucking Companies, the National Association of Small Trucking Companies, The Expedite Alliance of North America and the Air & Expedited Motor Carriers Association, asked a federal appeals court to block the implementation of CSA 2010 or, at the very least, to stay the publication of its safety ratings until the FMCSA completes a rulemaking process that complies with the Administrative Procedure Act (APA) (see story).  Unlike the current SafeStat program, the SMS impacts a carrier’s safety rating and assigns safety scores to carriers and drivers.  Moreover, SMS data would become available to the public.

It is difficult to dispute the FMCSA’s bolstered efforts – who doesn’t want safer roadways?  We need to ensure carriers and drivers are capable of safely traversing our highways, suburban streets and side roads.  But the accuracy of the data itself is in dispute.  And some believe that publishing this data will wreak havoc on a struggling industry.

CSA 2010 features a BASIC scoring system (Behavior Analysis Safety Improvement Categories) and uses the following seven categories to calculate safety scores:

- Unsafe Driving (i.e. speeding, improper lane change)
- Fatigued Driving (i.e. Hours-Of-Service violations, crash reports)
- Driver Fitness (i.e. lack of training, medical issues)
- Controlled Substances, Alcohol (i.e. misuse of medication)
- Vehicle Maintenance (i.e. mechanical defects)
- Cargo-Related (i.e. spilled cargo, unsecured loads)
- Crash Indicator (i.e. patterns of crash involvement)

But what are the formulas used to develop these scores?  Perhaps more importantly, is the playing field level?  For example, some states just need “probable cause” to charge a moving violation and carriers that are required to maintain driving logs will be compared with those that are not required to do so.  Most logging violations involve recordkeeping errors, not excess driving time.  Will data be deceiving?  And if data needs to be corrected, can carriers and drivers rely on a fair and satisfactory process?

The filing associations contend that the public release of data will have an anticompetitive effect on the industry.  Additionally, shippers and brokers may be liable for “negligent selection” of a motor freight provider as public data easily becomes evidence in a trial.  CSA 2010 may also result in a driver exodus.  Some predict a 10 percent decrease in truck drivers as CSA 2010 data renders some operators unemployable.  And as we know, less drivers means tighter capacity.

The filed motion states, “While the public undoubtedly has an interest in safe highways, it also has an interest in a competitive motor carrier industry, especially in these economic times.  A program that decreases competition, reduces jobs, and increases transportation costs, is not in the public interest.  Implementation of CSA 2010 in its current form threatens the survival of thousands of carriers, many of which are small companies in rural America.”

The associations say they want the FMSCA to comply with the APA which entails notice-and-comment provisions that would allow interested parties to comment on the proposal before final rule.  The FMSCA did invite comments on its proposal, and made modifications accordingly (see story), but it did not provide full disclosure regarding all aspects of the proposed rule, namely, aspects surrounding the data.

This is a difficult issue to navigate.  As transportation industry professionals, and drivers and passengers, we need to do all we can to ensure safe roads. But how will CSA 2010 affect our industry and our economy?  What are your thoughts?