On April 17, Food & Consumer Products of Canada (FCPC) held their annual Supply Chain Symposium.  It was an excellent event that attracted many of the top food and consumer products manufacturers in Canada.  I have attended a number of very good supply chain educational events over the years.  This one ranks up there with some of the best CSCMP annual conferences.

This was direct result of how Errol Cerit, Senior Director, Supply Chain & Industry Affairs and his team at FCPC delivered on their theme of “Thinking in New Boxes.”  The meeting began with a stimulating interactive session led by Alan Iny, Senior Global Specialist, The Boston Consulting Group.  Drawing from his upcoming book on this topic, Mr. Iny opened the day by identifying how we all call upon our paradigms, concepts and stereotypes to shape the boxes we use to classify the data that we receive.  This set the stage for the remainder of the day and for Mr. Iny’s closing session.

This was followed by a presentation from Peter McMahon, Chief Operating Officer of Loblaw Companies Limited.  Mr. McMahon highlighted how 14 million Canadians go through the company’s 1200 stores across Canada each week.  He shared with the audience some of the key market segments driving his business, some of the key forces affecting the retail food industry and then outlined the company’s supply chain transformation strategy to serve customers in the past, present and future.  It was very interesting story.

Mr. McMahon was followed by Professor Benoit Montreuil, Canada Research Chair in Enterprise Engineering at Laval University.  Mr. Montreuil spoke about creating a “Physical Internet,” a “paradigm breaking” way of creating a physical superhighway or infrastructure for freight transportation that would parallel the IT infrastructure developed for the Information Superhighway. 

Professor Montreuil presented a very effective case for the need to create a “Physical Internet.”  Logistics costs represent 5 to 15 percent of GDP.  Greenhouse gas emissions continue to rise.  The professor argued that sixty percent of the weight-volume for freight is comprised of air and packaging.  Twenty-five percent of freight travel is the movement of empty road equipment. 

It is hard to believe that the North American Free Trade Agreement (NAFTA) came into effect on January 1, 1994, almost twenty years ago.  Like so many of us in the industry at the time, my colleagues and I rushed down to Laredo/Nuevo Laredo and other key Mexican points to learn the intricacies of the Mexican market and border clearance processes.  But a “calamitous” peso crash, the rise of Asia and its huge, cheap labour force, the prevalence of ocean shipping, low energy costs and a host of other events conspired to delay the anticipated growth in the Mexican freight market.

Ten years ago, wages in Mexico were six times higher than those paid in China.  A gallon of gasoline in America was $1.11 in 1994.  By March 2003, it hit a record $1.79 a gallon. 

Flash forward to 2013 and the picture is very different. The wage gap between Mexico and China had shrunk to 40 percent by 2011, according to the International Monetary Fund. Gasoline prices are averaging $3.63 a gallon for regular fuel, double the figure in 2003 and almost four times the cost in 1994. 

Of course, geography is a key factor.  Mexico not only sits across the U.S. border but it is a gateway to the Latin American markets that are buying Mexico’s autos, appliances and advanced electronics.  The shorter transit times on shipping between Mexico and the United States and Canada are a big advantage over ocean shipping from Asia.

Manufacturing activity in Mexico is booming.  While much of the world experienced slow growth or recession in 2012, Mexico had 6% GDP growth.  Manufacturers in Mexico have well established supply chains that ship finished product north to U.S. markets, while raw materials move south to service their production lines.

The fourth quarter 2012 financial results for America’s leading truckload carriers tell a story of an industry going through transformation and change.  The most dramatic poster boy of this change can be seen at the largest carrier in the group, JB Hunt.  Basic point to point truckload carriage has fallen so far that it is almost irrelevant in its overall business results.

In Q4, Hunt generated about $1.33 billion in revenue (including fuel surcharges), but only about $112 million of that came from regular truckload carriage (not including fuel surcharge). That's just about 9% of revenue, down from 12% the previous year. Basic truckload's percentage of total profit at Hunt is even smaller, at just 4%.

But Hunt's strategy of focusing on intermodal and dedicated transportation seems to be working. Its intermodal business, which now accounts for 73% of total profits, saw revenue grow another 12.7% in Q4 and over 14% for the year.

Other carriers in the sector have taken notice.  Werner's trucking revenue declined .1% for the full year while its Value Added Services business, which includes dedicated and intermodal, rose 10%, as it has followed in the footsteps of JB Hunt.   Werner's Specialized Services unit, primarily Dedicated, ended the quarter with 3,295 trucks equal to 46% of its total fleet.

While the major truckload carriers reported growth in these two business sectors, growth in their core business was restrained by several key factors.  Werner reported that “there are several truckload capacity constraints including an older industry truck fleet, the higher cost of new trucks and trailers, significant safety regulatory changes and a challenging driver market.”

For the past week I have been reading with great interest the postings on the LinkedIn Sales Management Group.  As of the date of this blog posting, there have been over 40 responses to the question, “What advice would you give a new salesperson”?  The tips offered were so good that I thought I would share a “reader’s digest” version with the followers of this blog. 

As I read these suggestions on a daily basis, I see two sets of users for these tips.  First, new sales reps should study this list and make sure they take action on every item.  Second, sales managers should take this checklist and cross reference it with their current (and future reps) to ensure they maintain a winning team.  Here are my 21 favourite tips for the new rep.

1. Achieve mastery of the services that you sell.
2. Achieve mastery in sales skills.
3. Seek out the top performers on your sales team and learn from them as to how they dress, their work ethic and their communication skills.
4. Understand how your services compare with those of your competitors.  
5. Be a great listener so you understand the needs of your prospects.  There is a good reason why we have two ears and one mouth.  Focus on understanding the needs of your customers so you can solve their problems. 
6. Get to know your prospects before you turn them into customers.
7. People buy from people, specifically people they like and trust.
8. Prospect, prospect, prospect.
9. Learn as much as possible about your customers.  The more due diligence you do up front, the easier it will be to close the sale at the end.
10. Be persistent and consistent.  Success comes from a strong work ethic.
11. Be passionate about your company and its services.
12. Try to sell solutions rather than products or services.  Learn your company’s value proposition and where it fits best.  Sell the value of your solution, not price.
13. Learn early on to distinguish buyers from non-buyers (i.e. lack of mutual fit/interest/resources, etc.).  This will go a long way towards increasing your income and your employer’s income while reducing customer acquisition costs.
14. View yourself as a profit centre.  To be successful, time management is critical.  Spend your time, energy and resources on the most viable opportunities in your sales pipeline.
15. Be ethical in all of your business.  Remember, you are selling your (and your company’s) credibility and integrity.  If you lose your integrity, you have nothing to sell.
16. Invest in yourself.  Continually upgrade your product and business knowledge and your sales skills.
17. At the end of the day, when all of the other sales reps have left the office, make one more call to a new prospect.
18. Acquire a CRM tool and use it faithfully every day.
19. If you are having difficulty in one or more areas of your sales pipeline, this is telling you that you have a weakness in specific areas (e.g. prospecting, obtaining appointments, asking for the sale). Take action to turn these weaknesses into strengths.
20. While the sales job can seem very lonely at times, don’t forget sales is a team sport.  Work closely with your manager and the rest of your team (e.g. drivers, dispatchers) to achieve your goals.
21. Always ask for the sale.  If you don’t ask, you may not get. 

I am sure there are many more tips that can be added to the list.  What advice would you give to new freight transportation sales rep?  I would love to hear from you.

This year’s Surface Transportation Summit will take place on October 16, 2013 at the Mississauga Convention Centre.   Please block out this date in your calendar.  We have some great speakers lined up for this year’s event.

The economic forecast for this year and for the balance of the decade is rather glum.  Many economists have projected a two percent growth in GDP will become the norm for the next several years.  This scenario is supported by the fact that 24 million Americans are out of work and millions more are underemployed or have given up looking for a job, corporations are reluctant to invest in their businesses until there is a more visible sign that a sustainable recovery is under way and the US government seems incapable of reaching far-ranging agreements on the financial management of the country.  Real gross domestic product -- the output of goods and services produced by labour and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012, certainly not a number that would instill confidence that America is turning the corner. Looking at the past several years, it is easy to support the thesis that we should expect to see more of the same in the future.

But America doesn’t seem to be buying into the low growth scenario.  Here is why.

• The stock market, a leading indicator of economic activity, has almost doubled since March 2009.  Investors poured $11 billion into U.S. equities in the first two weeks of 2013, the biggest gain since 2000.  The market is telling us that there are better days ahead.

• Over the next 5 to 7 years, America is expected to achieve energy independence and will no longer be dependent on foreign energy sources.

• A strong housing market gained momentum in November, 2012 and is expected to continue through 2013, especially with low mortgage rates, which will keep affordability high, according to the BBVA Compass. The Housing Market Index rose to 46 compared to 41 October, which is the highest level since 2006. The jump is a result of homebuilder’s confidence in the housing market.  New home sales and construction are expected to continue on a strong trend throughout the remainder of the year.

• A healthier economy and more model introductions should push U.S. auto sales above the 15 million mark this year, predicts the Polk research firm.  Auto sales should continue to lead the country's economic recovery, rising nearly 7 per cent over 2012 to 15.3 million new vehicle registrations.

• Another tech boom is under way with consumers migrating to tablets, smartphones and social media.  America is strong in these areas and Apple, a key player, has recently signaled that it plans to perform some if its manufacturing in the United States.

• The United States may be in the early stages of recapturing a significant piece of the manufacturing production that fled to Asia over the previous couple of decades.  This is being driven by three factors.  Wage rates in the U.S. are depressed, while labour costs in China are rising.   The surge in oil prices is making it more expensive to move goods across oceans and the shale gas boom in the U.S. has dramatically lowered the cost of powering a plant.   U.S. productivity rates are among the best in the world.  According to the Boston Consulting Group, the U.S. economy is poised to add between 2.5 million and 5 million jobs over the next decade as result of increased factory production (700,000 to 1.3 million actual factory workers and the rest from supporting services).

• U.S. employers added 157,000 jobs in January 2013.

Jeffrey Saut, the chief investment strategist at Raymond James, has suggested that if we look at the combined impact of all of these developments, we may be witnessing the early signs of a new long-term bull market.  Time will tell.  Low interest rates will not last forever.

One thing has been strangely missing during the first five weeks of 2013.  While President Obama has been pushing hard for immigration reform and new gun laws, two very important initiatives, he has said very little about any legislation aimed directly at economic growth.  Perhaps we will hear some of his plans during this week’s State of the Union report.  Certainly the President’s leadership in areas such as infrastructure development, education and training (retraining), debt reduction and a sound budget would go a long way towards powering America in this direction.  This was one of the key elements of his election campaign.  Now is the time for the President to step up and lead his country and the free world to a strong and sustained economic recovery.  Based on the trends above, he has the option of being a leader or a follower.  Let’s see which path he chooses to take.

Manufacturers and retailers spend millions of dollars a year on freight transportation.  Freight costs can represent between 1 and 10 percent of a company’s operating expenses.  Many companies treat freight costs as a necessary evil.  Once a year they engage in an annual ritual, the freight bid or RFP.  The current carriers are squeezed in their pricing; sometimes new carriers are brought into the mix if some incumbents haven’t performed.  Shippers walk away thinking they have dome their jobs and optimized the value of their freight costs.  They haven’t.

Every few years, shippers with a freight budget in excess of $1 million should conduct an independent audit of their freight programs.  Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well.  You might be amazed with what you find.

There are four key components of well conducted Transportation Audit.

1. Face to face interviews with the key transportation professionals using a structured interview format
2. Administration of a written transportation technology and strategy questionnaire
3. Observation of a company’s shipping operations including the packaging of the freight, dock operations , loading/unloading,
4. Analysis of a company’s freight data

The following items are assessed in the audit:

1. Organization of Transportation within business unit – degree of centralization/decentralization
2. Linkage between inbound and outbound freight
3. Where transportation fits within the design of the company’s supply chain
4. Location of plants, DC’s, vendors and customers and how transportation links these components
5. Freight spend as a % of revenue and trend over time
6. Utilization/effectiveness of transportation technology
7. Freight transportation budget versus actuals
8. Spend management/ Off-plan spend (e.g. use of expedited freight transportation)
9. Packaging of freight
10. Loading/unloading of freight – load optimization and load factors
11. Dock operation
12. Use and management of private fleet
13. Mode and carrier selection process/vendor and customer required transit times
14. Analysis of Routing Guide by mode
15. Freight spend data analysis by mode
16. Compliance tracking (e.g. compliance with routing guide)
17. Freight rate benchmarking – is it done?
18. Timing/results of most recent freight bids by mode and results achieved
19. Carrier performance management (e.g. scorecards) – on time service, billing accuracy, claims ratios, customer satisfaction
20. Freight rate auditing process – pre and post-audit

The results of the audit provide a prioritized list of cost savings opportunities.  They highlight opportunities to strengthen the transportation organization.  The audit also provides a road map for improving processes and customer satisfaction.

Regina’s Global Transportation Hub (http://www.thegth.com/) was launched in February of 2011.  The 1700 acre property is owned and operated by the province of Saskatchewan.  Canada’s Federal Government has provided funds for the road network. 

According to Blair Wagar, its chief operating officer, it was developed to achieve several objectives:

1. 1.Try to improve transportation and logistics in Saskatchewan;
2. 2.Bring shippers and carriers together at one location;
3. 3.Help companies drive cost out of their supply chains.

One of the 2013 trends identified in my last blog was the requirement for transportation professionals to ramp up their efforts at Risk Management.  In recent years we have seen a range of weather related natural disasters.   Of course, disruptions to supply chains can come from other sources such as terrorism, wars, accidents, the failure of various operating systems such as telephone and computer systems, quality control problems and export restrictions.  To make matters worse, most of these disruptions are unpredictable in timing and scope.

Supply chain risks can be categorized into five groups: operational, social, natural, economy and political/legal.  Each shipper has to make an assessment of the potential risks to their supply chains.  Supply chain risk management can be defined as attempts to identify risks and quantify their commercial financial exposures as well as mitigate potential disruptions at each node and lane in the supply chain.

Supply chain risk models can vary from the rudimentary to the sophisticated.  In the case of the latter, complex “what if” analyses can be performed.  These allow shippers to identify potential trouble spots and map out alternative supply chain strategies.  Historically, shippers have tended to focus on factors with the biggest impact on their supply chain, such as on-time performance, supplier lead time variability and carriers by origin or trade lane.

Based on the escalation of various risks in recent years, there is a need to take risk management to another level.  Shippers need to perform a probability analysis on the impacts of each potential disruption, with a particular focus on alternative vendors, manufacturing facilities, modes, carriers, origin points, ports, border crossings, distribution facilities and destination ports.

Looking ahead to 2013, there are some major (predictable) risks that could drive up supply chain and transportation costs.   These include the result of the ongoing debt discussions in the United States, the impact on fuel costs if there is more violence in the Middle East, a driver shortage if the economy rebounds faster than expected, the recession in Europe and other weather related problems.  In Canada there is a risk of a housing bubble which would have a major impact on its economy.  In addition, there are risks that cannot be predicted at this time.

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. 

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

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:

1. Data Mining

2. Marketing, particularly social media marketing

The decision by Wal-Mart to conduct a pilot of a 60 foot high cube tractor-trailer in Ontario, Canada caught the transportation industry off guard.  The surprise is not so much that a newer and longer piece of trucking equipment is being trialed.  This was inevitable.  The surprise is that the initiative was driven by a large shipper and not by a Trucking Association or trucking company in Canada or the United States.    

The arguments in support of the trial are compelling and are the same arguments that were made when 53 foot trailers and every other innovation in transportation occurred.  A 60 foot tractor-trailer that offers 30 percent more cubic space promises to make the North American economy more efficient.  It places fewer trucks on the road, thereby reducing congestion and lessening the need to refurbish our existing highway infrastructure.  It reduces the impact of a driver shortage.  It would reduce fuel consumption and greenhouse gas emissions.  It permits drivers to accomplish more under HOS restrictions.  It would allow trucking companies to derive a better return on their investment.

The arguments against Wal-Mart’s pilot are the same as those made each time there is a proposed change of this nature.  The most frequently mentioned reservation is that this will make our roads less safe.  It will result in more highway fatalities.  The prototype trailer is not in compliance with existing laws in various jurisdictions.  There will be problems in backing up a tractor-trailer combo of this nature into many existing loading and unloading docks.  Longer high cube equipment will contain heavier payloads that will speed up the damage to our roads and highways.   It will require infrastructure changes to accommodate vehicles of this length.

While all of these comments deserve discussion, it must be pointed out that the transportation industry has dealt with all of these issues before.  Laws can be amended.  Loading areas can be reconfigured.  Bridge crossing can be modified.  Weight configurations can change.  It wasn’t that long ago that Ontario ran a trial on long combination vehicles (LCVs).  What makes a 60 foot tractor-trailer so different?

Perhaps the biggest issue is the impact that the widespread standardization of 60 foot equipment would have on the capital budgets of trucking companies and shippers who have their own fleets.  The industry has billions of dollars invested in 53 foot equipment.  With an economy that is less than robust, trying to “keep up with the Jones” by having to convert part of a fleet to 60 foot equipment is certainly not what the industry is looking for at this time.  This issue alone explains why longer tractor-trailer lengths have not been driven by the trucking industry.  A change of this nature would cost enormous amounts of money.  The cost alone creates a certain amount of inertia and resistance.

Pierre Berton, the late, famous Canadian author noted in his book, “The Last Spike,” that CP Rail has held a respected place in the country’s history.  He wrote that “no other private company, with the single exception of Hudson’s Bay Company, has had such an influence on the destinies of the nation.” For most of the past 15 years, CP Rail faced stiff competition from CN Rail as Paul Tellier and Hunter Harrison led the company’s move from a bloated government run enterprise to a highly profitable public company.  In fact CN’s operating ratio of 61.3 is not only the best among the major North American railroads, it is one of the best of any company in the transportation industry.

The fact that CP Rail lagged so far behind CN Rail and the other class 1 railways in North America led the activist investor Bill Ackman, of Pershing Square Capital, to launch his “palace revolt” proxy battle that resulted in the replacement of CP’s former President with Hunter Harrison, whom he brought out of retirement to drive the railway’s profit improvement.

As we pass through the last quarter of this year, Canada’s two largest railroads are heading down separate tracks.  With an operating ratio is the low 80’s, Mr. Harrison has embarked on a series of actions to reduce costs through improved asset utilization.  This is another way of saying that CP Rail is planning to move its equipment more quickly and efficiently, to become Canada’s second “precision” railroad.   It is seeking to accomplish this by undertaking a series of initiatives.  These include:

• Building trains at CP’s intermodal terminal in Vancouver with blocks of cars for long haul destinations. This reduces stops and streamlines connections.
• Increasing average train lengths to 7,000 to 12,000 feet
• Speeding up the fueling of trains
• Improving daily scheduling
• Investing $1.2 billion in 2012 and $1 billion in 2013 on key infrastructure projects
• Working with customers at both ends to improve coordination

The net result of these changes is that CP Rail now provides 4 day transit times between Vancouver and Chicago and Toronto.  These changes represent half of the transcontinental trains that CP launches daily across its network.  Mr. Harrison is not expecting an overnight drop in the company’s operating ratio.  He told Bloomberg News that he is targeting about 65 percent in the next four years.

Shippers appear to be taking notice of improved service on both major Canadian railways.