In reviewing the 11^th annual shippers choice awards in the current issue of Canadian Transportation & Logistics, I noted with interest that of the hundreds of carriers rated in the survey, only 57 were able to surpass the Benchmark of Excellence.  The magazine presents a number of KPIs (Key Performance Indicators) and lists the scores of the top ranked carriers, by sector (e.g. LTL, truckload etc.), along with the Benchmark scores.  Unfortunately, too many trucking companies are viewed as commodities and don’t measure up.  Being less positively viewed by shippers can make it difficult to achieve satisfactory pricing levels and as a by-product, satisfactory operating ratios.  The data highlights the importance of customer engagement, of being superior at meeting shippers’ needs.

Many companies bring their leadership and management teams together on a quarterly or annual basis to craft/update their budgets, strategies and business plans for the coming year.  In a recent McKinsey Quarterly report, prepared by consultants Tom French, Laura LaBerge and Paul Magill of McKinsey & Company, the writers suggest that many companies are fragmented in their approach to customer interaction and engagement.  The consultants offer a six step plan for superior customer engagement.

1. Hold a Customer Engagement Summit

They suggest that the leadership teams in companies should hold a “customer engagement summit”.  They argue that senior managers, from all departments of the company, should look beyond the basic interactions that customers have with various departments.  The meeting should focus on developing strategies to motivate customers to invest in a continuing relationship with the company and its services.  In other words, companies should implement strategies that move shippers along the customer loyalty continuum.

      2. Focus on Three Factors

The writers outline three factors that should be addressed in formulating a customer engagement strategy.  First the company should construct a vision for how it wishes to build relationships with its customers.  Second, the company should craft an integrated and consistent strategy for interacting with customers across its various departments.  For a trucking company, the customer interactions with Sales, Customer Service, Dispatch and Claims should be in harmony.  Third there should be agreement on the components of the company’s customer engagement system that will be undertaken in-house or via its partners (e.g. beyond carriers, carrier partners, pick-up and delivery agents etc.).

Many of us receive information from multiple news sources on a daily basis.  You may start your day with the morning newspaper in hard copy or on your iPad, Kindle or Kobo.  If you are in the transportation industry, throughout the day you are likely receiving trade magazines in hard copy and/or digital form, news feeds and white papers from various sources, updates from your LinkedIn groups, Twitter feeds, Facebook updates and of course dozens or even hundreds of e mails and text messages.    Of course many of us have interests beyond freight transportation that may include Business, Investing, Sports, Technology, the Arts and/or a range of other topics.  Trying to stay abreast of the news in these areas can often result in another set of publications and news feeds.   The management of information can be quite a challenge.

Using software developed by paper.li, I have tried to make life easier for transportation professionals.  Dan’s Transportation Newspaper is published daily, 7 days a week, 52 weeks a year.  The primary focus of the paper is freight transportation.  Stories on truck, rail, air and ocean shipping are included.  Since many of us are keen students of Business and Sports fans, the scope of the newspaper includes important stories in these areas.

The freight sections include stories from the Journal of Commerce, Transport Topics, American Shipper, Logistics Management and from other American and Canadian sources.  The Business section contains features from the Wall Street Journal, Harvard Business Review, ISM, The Economist, Report on Business and other leading publications.  The Sports segment provides articles on the NFL, NHL, MLB, NBA and the CFL.  There are 25 major news feeds that supply articles to the newspaper on a daily basis.

Busy transportation professionals can now obtain the latest news in all of these areas in one daily newspaper.  The good news is that there is no charge. 

Here is a link to the paper.  http://paper.li/DanGoodwill/1342211466?utm_source=subscription&utm_medium=email&utm_campaign=paper_sub

Freight costs often represent a significant percent of a manufacturer or retailer’s expenses.   While many companies have highly qualified CFOs and VPs of Logistics or Transportation, the management of freight costs is often sub-optimized.  This appears to be a result of a lack of collaboration between these executives with each having a different set of metrics and perspectives.  Here is my take on why this is happening.

 Business Strategy versus Transportation Strategy

CFOs are focused on the strategic direction of the business, on earnings, cash flow and return on invested capital.  They are under pressure to reduce the amount of inventory tied up in supply chains. To a CFO, lean inventory means “reduction in working capital tied up in inventory.” 

VPs of Logistics and Transportation are preoccupied with efficient supply chains.  Leaner inventories mean smaller production lots and faster transportation, which can command premium rates since they preclude the use of cheaper, longer-transit modes, and may even require paying a premium for expedited freight. On the inbound side, this can cause plant or production line shut-downs due to lack of raw material or parts. On the outbound side, it can lead to empty shelves or the loss of a customer and its associated revenue stream.

Inventory is a component of working capital. Investors look at the levels of capital tied up in the supply chain – the lower the better. However, if you take your inventory, and therefore working capital, too low, your profit margin may suffer.

Over the past several decades, “Offshoring” has become a very popular supply chain strategy.  The low costs of production in many Asian countries combined with enhanced ocean shipping and improved North American intermodal services have made this sourcing option very attractive to many manufacturers and retailers.  The Offshoring movement accelerated as companies in a variety of industries followed their competitors abroad and moved manufacturing jobs to other countries.  The Great Recession was a further tipping point in the reduction of North American manufacturing jobs. Recent economic data suggest that manufacturing is slumping in the United States and Canada and it is being pulled down by drops in new orders and shipments.

The Asia outsourcing curve may be about to reach an inflection point.   Labour costs in China have been doubling every three years.  Changes in currency levels and energy prices have also altered the equation.  If one factors in labour costs, freight costs and the Total Cost of Ownership in bringing goods from China to North America, as compared to manufacturing them here, the TCO’s are expected to converge in 2015 according to Harry Moser, Initiative Founder at the Reshoring Initiative (http://www.reshorenow.org/), a non-profit organization based in Chicago, Illinois. 

Mr. Moser argues that about sixty percent of cost studies are flawed.  They do not reflect the full set of variables and the full range of costs involved in offshoring. 

The Reshoring Institute offers a free software tool (TCO Estimator) and a manual to perform detailed calculations and allow users to make informed decisions.  The cost model includes 29 cost factors.  Using a set of pull down menus, freight costs from 17 countries, duty costs and various risk elements, the TCO tool allows companies to make accurate comparisons. Mr. Moser indicated that the model is based on moving goods from China to Chicago and the calculations use in $U.S.  Upon questioning, he indicated that Canadian companies should be able to use the model and make the appropriate adjustments for moving freight to a major Canadian city (e.g. Toronto, Montreal). 

Results from a recent survey indicate that 61% of larger companies are considering bringing manufacturing back to the United States.  He listed a number of major corporations that are Reshoring at least some of their manufacturing back to the USA.  They include Caterpillar, General Electric, Ford, NCR and Master Lock.

The proxy battle at CP Rail is unprecedented in Canadian business since it resulted in the resignation of the company's CEO and 4 directors.  It is hard to recall another proxy battle in recent history that produced such a profound and dramatic result.

It is easy to discount what happened at CP Rail as the result of the work of a determined, experienced shareholder activist who was able to convince other shareholders that the company could achieve superior financial performance with a new executive team.  If that is the only takeaway from this “palace revolt,” that would be unfortunate.

From my perspective, there is so much more to learn from the changing of the guard at CP Rail.  The fact is that CP Rail was an “underperforming” company in its segment of the transportation industry for a long time.  A rail renaissance has been under way for more than a decade.  Smart investors like Warren Buffet and more recently Bill Ackman realized that there are only 7 class 1 railways in North America and that there are large barriers to entry.  As an oligopoly, the industry has huge pricing power.  As energy prices rise and driver shortages increase, rail transportation becomes a very cost and service competitive option to trucking.  Moreover, many truckers are converting much of their long haul and even medium haul (e.g. 500 miles) movements to rail.  The growth prospects for rail are excellent.

One cannot criticize the CP Rail CEO, a CP Rail “lifer,” who was ousted, and his team, as inexperienced railroaders.  One cannot criticize the chairman and the board of CP Rail as not being a “blue chip” group of experienced business leaders.  The “rub” is that this team did not keep pace with where the industry was going.  An inbred management team coupled with a “clubby” board did not produce results in line with other top performing railroads.  It took an activist investor to shake the tree to remove some of the apples.

The question is what would have happened at CP Rail if Bill Ackman had not come along?  How long would the company have continued to drift under its leadership team?  How many other public transportation companies are in the same position?