Back in the 90s, I had the privilege of leading Canada’s largest Intermodal Marketing Company. Since that time, I have been a big supporter of this service. In our consulting work with shippers, we are often struck by the fact that this service remains undervalued and underutilized. The purpose of this blog is to challenge shippers to revisit and rethink their company’s intermodal activity and help them craft an effective plan within their supply chain strategy.

While intermodal service provides various benefits, the top advantage is that on longer lengths of haul (i.e. over 1000 miles), it typically costs less than over the road truckload service. While transit times are longer in some (but not all) instances, the economies of moving multiple containers on an intermodal train usually provide shippers with a cost advantage. When compared to truck transport, lower fuel surcharges and less exposure to driver shortages are also beneficial.

Over the past decade, all of the class 1 railroads in North America have invested heavily in their Intermodal terminal network and service offerings. As an example, a few years ago, CN Rail built a rail facility in Prince Rupert, British Columbia, the closest North American port to Asia. That port allows for the movement of intermodal containers on a single-line CN train from Prince Rupert across Canada or through Chicago as far south as New Orleans, LA. Here are a few steps to consider in preparing an effective intermodal strategy.

Step 1 – Revisit your vendor and customer service requirements

Every few years I like to take a look at the segment of the freight industry where I got my start, the LTL sector. As I reviewed the landscape for this year’s blog, I am struck by the significant changes taking place in both the United States and Canada.

Revenue Growth Stagnated

Here are links to the top 100 carriers in Canada (http://www.todaystrucking.com/top100 ) and the top 25 LTL carriers in the United States (http://www.joc.com/sites/default/files/u48801/truck-tables_1_0.jpg ). The strong surge in revenue that less-than-truckload carriers enjoyed in 2014 stalled last year, as weaker demand and lower fuel surcharges dragged down LTL trucking’s top line. The combined revenue of the 25 largest U.S. LTL trucking companies declined 0.5 percent in 2015 to $32.1 billion, after shooting up 9.1 percent to $32.3 billion in 2014, according to The Journal of Commerce’s 2016 ranking of the Top 25 LTL Carriers, prepared by SJ Consulting Group. The report concludes that the decline in revenue may have as much to do with falling fuel prices as lower industrial demand.

The LTL Industry has become a “Big Boys” Game

It was just a few years ago that the airline industry appeared to be teetering on the abyss. During this tumultuous period, many airlines merged or went out of business. Passengers had the upper hand and played one carrier off against another to their best advantage. One of the tools that helped salvage the industry and significantly boost its financial results has been pricing.  The airlines have become very clever in monetizing every aspect of their business.

If you want food on a plane, you have to pay for it. If you wish to reserve a seat or obtain a seat with more legroom, you pay for it. On many airlines, you pay for every bag you check. If a passenger travels to a specific set of destinations on a repetitive basis, some airlines will create a package deal (i.e. offer a block of tickets at a preferred rate).

The size of a plane utilized is tailored to the volume of passengers on the route. Certain larger size planes are utilized on heavy volume routes during the day and then assigned to less frequent evening fights on lower volume routes. Smaller planes or small regional partner airlines are utilized for flights to remote locations.

Now, with dynamic pricing, airlines adjust their fares based on seat availability, time of day, day of the week and other variables. Low fares are available in the early stages to create critical mass. As a flight fills up, rates go up. Passengers are “manipulated” into taking flights at slower times of the day to balance loads and maximize profits.

The brokers of the freight industry, online travel agents such as Expedia, are also skilled at managing travel data and selling flights, hotel rooms and car rentals. The LTL freight industry is in the process of learning from the airline industry.

The essence of successful freight rate negotiations is an honest exchange of information. Carriers count on shippers to supply them with complete and accurate information on shipment weights, dimensions, volumes by lane, seasonal spikes and any special service (i.e. job site deliveries, weekend pickups etc.) requirements. Shippers expect carriers to be able to supply them with the correct types of equipment to pick up their freight at the designated time, to provide adequate amounts of equipment at the right time to move their loads, to meet their designated transit times over 95% of the time and to provide good customer service and quality information as they outlined in their submission and interview.

While this all seems so straight-forward and reasonable, there are a host of challenges that get in the way of committed shipper-carrier relationships. Here are a few to consider.

Changes in Shipment Volumes

Business conditions are constantly changing. There are ebbs and flows in the general economy that can impact on many industries, including both shippers and carriers. There is ongoing competition in the market where shippers win or lose customers every day. Then there are mergers and acquisitions and new product launches (or old product cancellations) that can lead to rationalization of locations for factories or distribution facilities. The net impact of these changes is that the shipment volumes discussed in an RFP may not come to pass or the actual volumes by lane may vary over time.

The first part of this blog focused on the operational, service and equipment issues that constitute a strong shipper-carrier freight agreement. This blog will address the financial and business issues that need to carefully captured in detail.

6. Rates and Service Charges

Further to the last blog, a well written motor carrier agreement can be a powerful tool in promoting partnerships between shippers and freight companies. Listed below are some of the major components of a comprehensive contract.

1. Parties to the Agreement

The document must clearly identify the parties to the agreement, including the use of any third parties or sub-contractors. This is very important since it is critical that all transport companies that perform services for the shipper have the same licenses, insurance and service levels as the primary party to the agreement. In other words, they must be a replica of the primary party or any differences must be so stated. The agreement must also make clear that the parties to the agreement are independent contractors. Neither Shipper nor Carrier shall have the right to enter into contracts or pledge the credit of or incur expenses or liabilities on behalf of the other party.

2. Services

a) Types of services

Motor carrier agreements or contracts are documents signed between shippers and carriers that set out the parameters and processes under which two or more companies work together to provide freight transportation services. These documents, often prepared by lawyers (with input from freight management professionals), set out a range of service expectations and freight rates that define the relationship between the parties. While freight agreements have come into widespread use, the question is if and when these documents are necessary?

One could argue that if two or more parties are operating in good faith, do they need a legal document to circumscribe the nature of their relationship? If shippers and carriers are supposed to work together as partners in an open and trusting manner, does a formal, written agreement get in the way of a business partnership arrangement? Does it inhibit open and honest communication?

Do motor carrier agreements create a rigid framework that reduces flexibility? Are they detrimental to the sometime unpredictable and fluid nature of freight transportation? Does a formal agreement make it more difficult for a shipper to obtain additional equipment or after hour’s service? Do they place carriers with a limited set of equipment into a straight-jacket? Does the fear of punishment or service failure force a carrier to provide equipment and service to one client (that has a contract) at the expense of another client (that doesn’t have one)?

Recent stock market and currency value declines in China and Canada point to a challenging year ahead for the economies of these two countries and many others around the world. While the United States has remained fairly stable amidst current world turmoil, its high valued currency may slow exports to its key trading partners. If business levels deteriorate this year, this will place added pressure on shippers who are trying to manage their freight costs? Is this a year to conduct a freight bid?

Certainly faltering economic conditions typically encourage manufacturers and distributors to conduct RFPs to keep freight costs as low as possible. Beyond the general state of the economy, there are a usually a range of conditions that set the stage for a successful freight bid. Here a few to consider.

As we approach 2016, there are a number of forces that are shaping the economics of Freight Transportation. Here are a few to consider.

The US Economy and the US Dollar

The US economy is providing a number of mixed signals in December of 2015. Unemployment is at only five percent. Economic growth, while sluggish, has been able to generate a consistent 200,000 new jobs a month. But some other indices don’t look so good.

The Institute for Supply Management (ISM) PMI Index of economic activity in the manufacturing sector contracted in November for the first time in 36 months, since November 2012, while the overall economy grew for the 78th consecutive month. The November PMI® registered 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent and below the 50 percent mark that signals growth. The New Orders Index registered 48.9 percent, a decrease of 4 percentage points from the reading of 52.9 percent in October. The Production Index registered 49.2 percent, 3.7 percentage points below the October reading of 52.9 percent. Ten out of 18 manufacturing industries reported contraction in November, with lower new orders, production and raw materials inventories accounting for the overall softness in November.

The past year started with some solid tailwinds as the economies of the United States and Canada appeared to be in a growth mode. Then a number of unexpected events took place that changed the trajectory of the year. Here is our synopsis of the major freight transportation stories of 2015.

The Collapse in Energy Prices

The rout in oil prices began in late 2014 as Saudi Arabia stood firm in its insistence not to cut production quotas. The downturn in China’s economy produced less demand as oil supply remained at pre-downturn levels, a recipe for low oil prices and other challenges throughout the year. This had a huge impact on Canada’s oil sands companies, producing significant layoffs. There were also spillover effects in other energy sectors such as coal mining. The latter experienced very large price drops and decreased shipping volumes.

The steep decline in fuel and oil prices has, in turn, been a boon to freight transportation and logistics services providers primarily in the form of lower operating costs, while at the same time tremendously aiding carriers and providers serving retail-based customers, as lower fuel prices have dramatically impacted the amount of discretionary income consumers have.

As everyone knows, it is very difficult to time the stock market. While we are all aware of the old adage, “buy low and sell high”, in reality, this is not easy to do.

When it comes to freight rates, it is sometimes problematic to select the right time to put a company’s freight out for bid. The last few years have been particularly challenging for shippers. After the Great Recession, carriers have been adding capacity in a prudent and deliberate way. Gone are the days when carriers build transport companies and hope that shippers will come. In addition to managing their fleet capacity, carriers have also been challenged with the struggle of recruiting qualified drivers.

Consolidation in the trucking industry has been very prevalent in recent years. In Canada, companies such as TransForce have acquired large chunks of the small parcel, LTL and truckload sectors. There are simply fewer carriers for a shipper to choose from. Carriers have gained pricing leverage over the past few years.

Freight Bids or Freight RFPs have been around for over two decades. Every year we hear comments about their imminent demise. Unfortunately for many motor carriers, this is wishful thinking. While these exercises are often detested by freight companies, they are popular with shippers across North America. Why? When well done, they provide the shipper with better service providers at a lower cost.

One of the popular themes at many freight conferences is the talk of shipper-carrier partnerships and collaboration. I have heard this theme for a decade. If only shippers would sit down with their carriers, they could pull costs out of their operations and become more efficient.

While this is possible and even probable, the problem with this scenario is that the shipper is left wondering if carrier B could pull even more costs out of the operation than carrier A. This explains why so many shippers have contracted their freight to logistics service providers. They are not convinced that if they forgo the RFP in favor of collaboration, they will derive the maximum benefit. Thus the popularity of freight bids.

In the last blog, I highlighted some of the opportunities that shippers miss out on to save money on freight when they don’t manage their freight spend data effectively. What steps can a shipper take to correct this situation? Here is a partial list.

• Utilize a Transportation Management (TMS) System. TMS systems have changed significantly over the past ten years. Shippers can now buy or lease a TMS system at a reasonable rate. For companies that don’t wish to make this investment, they can reap many of the benefits without making a capital investment by working with a logistics service provider that has a leading edge system.

• Make sure the company’s or LSP’s TMS system is capturing the key data elements on a daily basis that are needed to monitor freight expenditures. This includes complete and accurate commodity descriptions, actual weights and billed weights, capturing the various cost elements of their shipments individually such as the freight rate, fuel surcharge, currency exchange, accessorial charges, carrier name, origin and destination cities, state/province and postal codes/zip codes, ship date and arrival date.

• Sort the data in the following ways to help identify opportunities for improvement:

             By carrier – to reduce the company’s dependency and vulnerability in case of a strike or business failure and to leverage shipping volumes

A company’s freight costs often represents between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their freight spend has a direct impact on their bottom lines. Nine years ago I wrote a blog with the title above. In that blog, I identified one of the consistent problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities.

Nine years later, this problem persists and it is not limited to just small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

The challenge now is that freight companies have figured out that if they use their scales and dimensioning devices, they can weigh and measure the freight they move more accurately. If shippers have poor practices that hinder the flow of their assets, they can calculate the cost of these deficiencies. They are now charging more aggressively for these additional costs and for the precise cubic space occupied by the freight. As a result, carriers can and are securing revenue that they may have missed in the past.

What is interesting is that some of these shippers have high quality ERP and accounting systems. However, when you try to extract a year’s worth of freight transportation data, you receive a file that is riddled with errors and omissions.

The 2015 Surface Transportation Summit (www.surfacetransportationsummit.com) will be held at the Mississauga Convention Centre on October 14. We are delighted to report that the event has a new partner, the Freight Management Association of Canada. Here is an overview of the day.

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 or Surface. If you are in the transportation industry, 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 throughout the day.

Of course many of us have interests beyond freight transportation that may include Business, Investing, Sports, Technology 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, Dan’s Transportation Newspaper tries to make life easier for transportation professionals. 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 as are stories on supply chain, trucking, warehousing, technology, data and energy management. Since many of us are keen students of Business, Economics, Social Media and Sports, the scope of the newspaper includes important stories in these areas.

The freight sections include articles from the Journal of Commerce, Transport Topics, American Shipper, Inbound Logistics, Truck News, Today’s Trucking, Logistics Management and other American and Canadian sources. The Business section contains features from the Wall Street Journal, Harvard Business Review, The Economist and other leading publications. There are 25 major news feeds that supply articles to the newspaper on a daily basis.

Some companies have strong leaders with good strategies and good systems. Unfortunately, they don’t put the pieces together and therefore deliver less than stellar freight management results. In other words, the execution isn’t there.  Projects are identified but they don’t produce the desired results.

Some companies seem to adopt a “flavour” or “mission” of the month approach. They hire a consultant to adopt lean manufacturing, lean logistics or balanced scorecards. The tools to make these systems work are never put into place properly and before you know it, they criticize the consultant, move on to the next consultant and don’t accomplish much of value.

While these companies may be able to generate pretty reports, the programs were ill conceived in the first place. They don’t produce results. This can lead to the “blame game.”

Achieving operational excellence is not about sexy slogans and programs. It is about teamwork, communication and commitment. There has to be an identification of the root causes of the problems. There has to be a commitment from the leadership to fix the problems. The company leaders must stay the course to fix the problems. They cannot assume that since a program has been put in place, the results will come automatically.

As we all know, freight capacity throughout North America is tightening. A shortage of drivers, new government regulations and rising fleet costs are making it increasingly challenging for trucking companies to operate their fleets. As a result, carriers are being selective in terms of the shippers for whom they will offer their fleet capacity.

Smart carriers are ranking their customers on the basis of profitability and ease of serving. Shippers must now make their companies and their freight attractive to their carriers to secure the capacity they need. These are some things they can do.

Run a Clean Operation

Simply put, shippers need to be organized. As carriers enter their customers’ yards, they want to find an available dock door and they want the freight and paperwork to be ready for pick-up. They don’t want to have to wait as other carriers to block their way. They also don’t want their customers to call them back 30 minutes after they left the yard to pick up an extra skid or two. In other words, trucking companies want consistency, reliability and predictability. They want to work with shippers that are efficient and keep their costs down.

Throughout this series of blogs, the focus has been on how Best in Class shippers ensure their freight is delivered at the right place, at the right time and intact. The beauty of freight management is that so much about transportation is measurable. Over the years we have observed how Best in Class shippers pull away from mediocre performers and industry laggards in the area of measuring performance. They tend to have better data and more robust and relevant tools and reports. These are some of the Key Performance Indicators (KPIs) and Reports that they utilize.

Macro Financial Indicators

The first set of financial ratios helps identify trends in supply chain costs and their impact on the business over time. Key ratios include:

Supply chain costs as a % of Revenue

Success in business comes from crafting and executing effective business strategies. The attainment of strong financial performance comes from integrating and aligning the various strategies of the business into a cohesive force. A company’s supply chain strategy, of which transportation strategy is a key component, is often a critical piece of the company’s business strategy. We often observe that the freight strategies of our clients are not well aligned with their business strategies. In fact, they often inhibit these companies from achieving the bottom line results that they are so desperately seeking. Here are some of the things that we commonly observe.

A Failure to Recruit and Train Top Quality Talent

As noted in an earlier blog (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-3-organization), it takes leadership and management skill to be an effective supply chain executive. By not hiring and training top quality management talent to this position, the company receives mediocre leadership and weak performance.

Some companies don’t fully appreciate the scope of knowledge (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-2-knowledge) that is needed to be a Best in Class Transportation operation. While companies will go out and hire top notch sales and engineering professionals, they will “force fit” unqualified individuals into the role of Transportation Manager. Without the knowledge, skills and resources, the company gets what it deserves - - poor performance.