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As the year 2013 winds down, it is time to reflect on the major transportation trends of the past year.  While I saw and read about a wide range of developments, these are the ones that resonated most with me.

1.Technology Comes to Freight Transportation

Last year I predicted that we would see a flurry of new technologies come to freight transportation.  They did and I wrote about some of these new companies on several occasions during the year.  Technology was successfully applied to the freight brokerage business, freight portals, LTL density calculations and to other segments of the industry.  Buytruckload.com, PostBidShip, Freightopolis, QuoteMyTruckload,  and Freightsnap were featured in various blogs during the year.  They are changing the way business is done in freight transportation.  Watch for more of these companies to surface in 2014.

2013 has been called the Year of the Network by numerous supply chain and transportation industry thought leaders.  Companies that built a successful supply chain trading partner network focused on three elements:

Connectivity— unite disparate systems and trading partners

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At the end of each year, I like to take stock of the major freight transportation stories of the past twelve months and look ahead to the trends that will drive the industry in the coming year.  The two blogs that I write are prepared from my perspective as a consultant to shippers and carriers.

This year I would like to hear from you.  Those of you who follow this blog observe trends in your segment of the industry.  Please take a minute to share them with me.  Please post them on this blog or send a private e mail to dan@dantranscon.com

Please feel free to select any major trend or trends that are having or will have a major impact on our industry, whether regulatory, economic, technological, demographic, consumer behavior, environmental, modal shifts or business strategy.

To broaden the range of inputs and perspectives, I will also post this request on Facebook, LinkedIn and Twitter.  In the coming weeks I will be preparing my two lists.  The lists will include a blend of my observations and yours.  Look for these two blogs in mid-December.  Thank you to those of you who take the time to share your observations with me.

 

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Last week the Council of Supply Chain Management Professionals released its 24th annual State of Logistics Report. Last year, business logistics costs were once again 8.5 percent of U.S. Gross Domestic Product (GDP), the same level they hit in 2011, the new report says. That means freight logistics was growing at about the same rate as the GDP. Inventory carrying costs and transportation costs rose "quite modestly" in 2012, said the report's author Rosalyn Wilson. Year-over-year, inventory carrying costs (interest, taxes/obsolescence/depreciation/insurance, and warehousing) increased 4% y/y as inventory levels climbed to a new peak. Meanwhile, transportation costs were up 3% y/y predominantly from an increase of 2.9% in overall truck transportation costs.

This "new normal" is characterized by slow growth (GDP growth of 2.5% to 4.0%), higher unemployment, slower job creation (which will primarily be filled by part-time workers due to higher healthcare costs), increased productivity of the current workforce from investment in machinery/technology (and not human capital), and a less reliable or predictable freight service (as volumes rise but capacity does not increase fast enough to meet demand). Wilson noted that slow growth and lackluster job creation has caused the global economy to wallow in mixed levels of recovery. "This month will mark the fourth year of recovery after the Great Recession, and you're probably thinking that here has not been much to celebrate," said Wilson. "Is it time to ask, 'Is this the new normal?'"

For logisticians, the "new normal" means less predictable and less reliable freight services as volumes rise but capacity does not. In areas such as ocean transport, Wilson said, this can mean slower transit times. "I do believe the economy and logistics sector will slowly regain sustainable momentum, but that we'll still experience unevenness in growth rates," Wilson predicted.

For cutting-edge logistics managers, however, the current environment also means great opportunities to secure increasingly tight capacity in an era of shrewd rate bargaining. This is partly because the trucking industry, in particular, is facing a lid on capacity because of higher qualifications for drivers while top carriers are becoming increasingly selective in their choice of customers and in the allocation of their assets.

"Truck capacity is still walking a fine line—few shortages, but industry-high utilization rates," Wilson explained. Truckload capacity continues to remain stagnant (with the majority of new equipment orders for replacement or dedicated fleets and the copious amount of truckload capacity sapping regulations coming down the pipeline) and the assumption that freight demand will continue to modestly increase (as the economy continues to muddle along at low single digit GDP growth in combination with population growth), a less predictable and less reliable freight market is developing (as described in the "new normal").

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In last week’s blog, I shared some ideas from the recent SCL – CITA annual conference on how to improve shipper- carrier collaboration.  Various suggestions were proposed by a panel consisting of two leading shippers and two major Canadian carriers.  Some other thoughts were expressed during other tracks that day.

The panelists presented some suggestions that came out of a joint meeting between the Ontario Trucking Association and the Canadian Industrial Transportation Association.  Here is more of what they had to say.

Removing Waste from the Shipper and Carrier’s Operation

During the panel discussion it was suggested that it is through trust, communication and dialogue, rather than through an RFP, that opportunities to remove waste from a shipper’s operation can be identified, discussed and solved.  The RFP process is typically too rigid to allow for a meaningful exchange of ideas and for the development of action plans. 

Since the focus in an RFP is typically on rates and service, it doesn’t create a forum for dedicated problem resolution.  Moreover, by not creating project teams, action plans and time lines to remove waste, the inefficiencies typically doesn’t get extracted.  The shipper continues to perform the same functions, in the same way, with its existing and/or new carriers.  Drivers continue to be pick up half full loads since opportunities to consolidate freight or change pick-up dates are missed. As one trucking executive mentioned, the savings generated from these types of initiatives can be much larger than the two percent saved as a result of the freight bid.

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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.

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Some shippers have a negative attitude towards freight brokers. Labelling them “freight pimps” or worse, they do not see their value proposition. They see freight brokers as obtaining transportation services that they could obtain on their own, without the brokers’ mark-up. This reflects a lack of understanding of where freight brokers fit in the portfolio of service providers available in the market.

Shippers have a limited amount of time to meet carriers. There are thousands of transportation companies across North America. Even the large transportation companies do not have sales representation in all North American markets and they do not provide short haul and long haul services in all markets. A broker with a large stable of carriers in their data base can often find transportation services that shippers cannot locate on their own and at rates that a shipper cannot procure on their own.

But not all freight brokers are created equal. Just as there are good and not so good trucking companies, some freight brokers are better than others. When should you consider using a freight broker? First, if you have trouble finding carriers that go to or from certain markets, you should contact a freight broker. Second, even on your major lanes, freight brokers may be able to find carriers that you cannot identify on your own. They may be able to offer better service and pricing than the “name brand” carriers serving some corridors. What are the criteria you should look for in selecting a freight broker?

Market Knowledge

You need to identify those markets where your broker has particular expertise and make a determination as to how that market knowledge matches up with your specific transportation needs. The good brokers “have a nose” for finding those carriers that need backhaul traffic in certain lanes. They can negotiate low rates, add their mark-up, make a profit and still be competitive with the asset based carriers with whom they are competing. This is the market knowledge they need to be successful.

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