For the past decade, the Canada-U.S. model of economic integration has been deteriorating - - a victim of a border chocked with traffic, an overreaction to the 9/11 attacks, steep fees and erratic regulation.  FAST trade has become thick trade.  Canada – U.S. trade peaked in 2000 and has stagnated since.  Between 2001 and 2010, Canada’s dominant share of U.S. imports has fallen precipitously across a range of products - - from furniture and electrical equipment to printing, paper and plastics.

Market share worth billions of dollars now belongs to China.  This reduction in efficiency came during a period of expanding global trade as China in 2009 eclipsed Canada as the leading exporter to the United States. 

The new deal that was announced in December 2011 by President Obama and Prime Minister Harper addresses America’s concern with security and Canada’s need to facilitate trade.  Rather than publish a comprehensive document as was done with the North American Free Trade Agreement, this new deal basically consists of a press release and a set of good intentions.  It has been called the North American Border Security and Trade “Trust Us” Deal.  Since the United States is in the midst of an election year and since some of these initiatives will require congressional approval and funding, time will tell as to how many of these good intentions become reality.

The good news is that there seems to be a consensus that a number of these action plans will take effect over the next few years.  These are some of the specific programs that will have a direct and positive effect on trade and transportation.

Harmonize and Improve “Trusted Trader” Programs

We enter 2012 with a lot of unknowns.  Will the European debt crisis be resolved effectively and expeditiously or will it lead to another recession?  Will the American economy that is showing some signs of improvement, be able to strengthen during a U.S. election year that will likely produce more political gridlock?  Will the expected surge of foreclosed homes further depress the U.S. housing market and the economy or will the buyers of these homes create a resurgence in home renovation?  Will North American consumers drive a solid increase in the purchase of goods and services at the expense of higher debt per capita or will this be a year to pay down debt and hunker down for what is expected to be a long and slow economic recovery?  Will business leaders feel confident enough to take some of the trillions of dollars that have been parked and invest in plant, equipment and new hires or will they keep their hands in their pockets and drive the unemployment rate higher?  I wish I knew the answers to these questions since they will have a material effect on freight transportation. 

With these issues as a backdrop, here are some suggested strategies to lead your freight transportation organization in 2012.

1. Expect the Unexpected and take an “Emergent” Strategy Approach

In such a volatile climate, a “proceed with caution” approach would make good sense in 2012.  This would include everything from fleet purchases to new hires. 

Unless a clearer picture begins to appear from the shadows of 2011, it would be wise to take an “Emergent” strategy approach first suggested by Professor of Business Strategy Henry Mintzberg at McGill University in Montreal. Instead of the more commonly used deliberate approach, the emergent approach is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. It is a more grass roots, front-line oriented approach where solving real business problems lead to new strategies.  Executives should look for new business opportunities among their front-line troops and middle managers.  They should test a number of these opportunities using an approach known as Jugaad.

As we enter the New Year, it is time to reflect on the events of the past year and try to anticipate some of the drivers of the economy in the months ahead.  In this blog, I will take a look at some of the key economic trends in 2012.  In the following blog, I will share some thoughts on the major drivers of freight transportation in the coming 12 months. 

Here are some of the economic forces shaping the economies of North America in 2012.

1. North America will avoid Recession

The United States and Canada will probably avoid a recession. The good news is that domestic risks have diminished somewhat, and growth momentum has picked up modestly. Consumers seem willing to spend and businesses are more disposed to hire—albeit cautiously. The consensus among economists is that over the next year growth in the United States and Canada will average between 1.5% and 2.0%.

2. Fundamental Changes are taking place in the Housing Market

Freight Transportation Adjusts to a Resetting World Economy

The year 2011 was another momentous one that was shaped by events on all continents of the world.  Uprisings in the Middle East and the overthrow of Hosni Mubarak and Muammar Gadhafi, the European debt crisis, the Occupy Wall Street Movement, the assassination of Osama Bin Laden, the earthquake and tsunami in Japan, the wedding of Prince William to Kate Middleton, and the premature passing of Steve Jobs were just a few of the signature events of another action-packed year. 

Closer to home, the three countries in North America all faced significant challenges.  The powerful drug cartels in Mexico are threatening its very existence as a democracy as the country gears up for elections in 2012.  The untimely death of Jack Layton, the very popular leader of the New Democratic party and the demise of Michael Ignatieff and the Liberal Party have given Steven Harper a majority government and a free hand at steering the Canadian economy over the next four years.  The U.S. situation is exactly the opposite as Democrats and Republicans cannot reach agreement on almost anything and as a result the country is in gridlock on most economic initiatives to spark its economy. 

Against a background of 8.6 percent unemployment in the U.S., millions more underemployed, one in four homes is worth less than the value of the mortgage, tight credit, anxiety over job security and a possible relapse into another recession, the economy is resetting.  Americans are saving more.  As various generations of families live together to better withstand the current economic uncertainties, home builders are erecting homes with two master bedrooms to address the social consequences of these challenging times.   Smartphones, tablets and the internet are reshaping so many of our day to day activities.  The economies of North America and around the world are being reset by this confluence of forces and by the rise of China and other developing nations around the world.

Today we received some unexpected good news in the United States as the unemployment rate fell to 8.6%.  In Canada the news wasn’t as good as the unemployment rate increased to 7.4 percent.  Without counting those people who have given up looking for work or who are underemployed (e.g. performing a job below their level of expertise and education at a wage inferior to what they should be earning), there are about 14 million people unemployed in North America (e.g. 13.3 million in the United States and 1.3 million in Canada). 

FTR Associates estimated that there was a shortage of 200,000 drivers in the United States in the first quarter of 2011.  How does one explain the fact that out of a pool of 13.3 million unemployed people (plus millions more if you include those who are underemployed), we cannot find 100,000 to 200,000 individuals to fill these jobs?

Here are some thoughts on this apparent anomaly.  There were 3.2 million commercial drivers in the United States in 2008, including 1.8 million heavy haul or tractor-trailer drivers, according to the U.S. Labor Department.  By May 2010, the number of big rig drivers had dropped 18.4 percent to about 1.5 million.  In other words, there are 300,000 drivers that left the labour force that should be available to fill the available jobs.  Why is it so hard to convince them to come back to work?

One of the most frequently mentioned reasons is compensation.  In the United States, experienced truck drivers can make $50,000 a year at some truckload carriers.  According to a BLS survey, the average wage was $39,450 in 2010 while the median wage was $37,770.  The survey indicated that 75% earn less than $47,000 per annum. 

The trucking industry has a long term practice of paying its drivers by the mile.  While there is certain fairness to this approach since it correlates directly with the amount of miles driven and hours worked, it also injects a level of uncertainty into the driver’s weekly pay package.  Inconsistent load availability translates into inconsistent pay. 

Last Thursday night, I had the distinct pleasure of participating in a Shipper-Carrier Roundtable along with a number of old friends and colleagues.  The event was organized by CITT, sponsored by Shaw Tracking and moderated by Lou Smyrlis, editorial director of Business Information Group, publishers of Canadian Transportation & Logistics and MotorTruck Fleet Executive.

As I was driving home, I tried to reflect on some of the most important messages I heard from my fellow panelists that night.  There were two that stood out.

First there was a comment from Doug Munro, president of Maritime-Ontario Freightways, about the importance of delivering good service.  While this may seem so obvious that it is not worth mentioning, it was the passion with which Doug delivered this message that stood out for me.  Doug made reference to the airline industry and noted that there is no acceptable norm other than 100% arrival of its planes.  Nothing less can be tolerated.  While it is fine for a surface transportation freight carrier to report a 98 or 99% on time service ratio, these statistics acknowledge that the company is failing 1 or 2 times out of every hundred deliveries.

Doug mentioned that one of the keys to his company’s success is to provide excellent service.  He highlighted that Maritime-Ontario Freightways is able to gain market share either through the service failures of his competitors or poorly executed acquisitions. He emphasized how he and his management team which he highlighted was the best he ever had, were all focused on instilling this message in their employees.

This message repeats itself in almost every shipper project that my company gets involved in.  During a carrier procurement exercise, shippers focus as much on service as they do on price.  A carrier that submits competitive pricing, but has not been able deliver consistent service will often find itself replaced during a freight RFP process.

On several occasions I have commented in this blog about a looming truck capacity shortage.  A soft North American economy coupled with political uncertainty and concerns about Europe and China, are discouraging carriers from making investments in their fleets.  Truckers are seeking to maximize the utilization of their existing assets and improve yields, particularly with rising equipment costs, increasingly burdensome government regulations, and a shrinking pool of qualified drivers. However, the on demand truckload model creates uncertainty as truckers wait for shippers to book a load and/or to balance a lane.   

Shippers are becoming increasingly concerned about finding the capacity they need to move their freight.  They are also concerned that tight capacity will lead to rising freight costs.   Capacity shortages in various North American markets this year have caused shippers to seek out options to current transportation processes.

A “Mutually Beneficial Antidote” to Securing Capacity and Rate Stability

One solution to these problems is dedicated contract carriage—the practice whereby, as the name implies, a trucker dedicates equipment and drivers to serving an individual shipper, allowing that customer to lock in rates and capacity with that carrier for a multi-year period.  John G. Larkin, lead transport analyst for investment firm Stifel, Nicolaus & Co., calls dedicated trucking the "mutually beneficial antidote" for carriers that want to get paid for capacity and shippers that want to know it's available.

"Both shippers and carriers are increasingly realizing that dedicated trucking may be just the solution that meets both their needs," Larkin wrote in early October.  He stated that shippers who own and operate private fleets could "see 10-percent savings right off the bat" from switching to dedicated service. That's because specialized operators can usually manage fuel, insurance, maintenance, equipment utilization, and driver schedules more efficiently than a shipper that operates its own trucks can, Larkin notes.  What's more, companies that outsource their fleet needs can free up their balance sheet capacity and reinvest more of their cash into their core business, which is generally not transportation, Larkin says.

The traditional and social media remind us on almost a daily basis that we are seeing the first manifestations of a looming capacity problem.  There are already capacity shortfalls in certain geographic areas using specific modes of transport.  With 15 to 20 percent of truck capacity removed during the recession and reduced driver availability, this may set the stage for challenging times for shippers in the years ahead as they seek to find reliable means of moving their freight.

The good news is that there is much a logistics professional can do proactively to make sure they protect the integrity of their company’s supply chain.  Here are some suggestions.

1. Think Strategically about your Supply Chain, not just Tactically about Transportation

Whether it is sourcing raw materials or shipping to customers, many organizations have options.  There may be alternative sources of supply, either domestically or in other countries.  There may be a variety of methods in bringing goods to market.  This may include shipping to a warehouse or direct to customer, varying order cycle times, changing manufacturing parameters, shipping more volume on slower freight days,  increasing safety stock levels, switching modes and a host of other variables.   This can also include relocating a warehouse to a more carrier friendly location where head haul or back haul traffic is easier to find.

In other words, it is not just about finding more carriers to handle your current volumes under the existing supply chain paradigms.  Securing capacity may require a number of strategic changes to the design of current supply chains. 

Two weeks ago I looked at the economic realities we are currently facing.  Leading economists are predicting either a number of years of slow growth or a return to recession.  Last week I focused on some of the strategies carriers are employing to maintain profitability.  In this blog I will highlight some of the strategies shippers are engaging to optimize their freight spend. 

As we approach 2012, shippers are facing a soft economy but tight capacity.  After being burned with excess capacity during the 2008-2009 recession, many carriers either parked equipment or left the industry.  In the United States, there are estimates that of a 15 to 20 percent reduction in freight capacity, much of which has not returned.  Carriers have been prudent and deliberate in adding equipment to replace an aging fleet or for limited growth.  They have also become much more focused on yield management to maximize the returns on their assets.  Against this backdrop, shippers are seeking ways to provide good service to their clients while maintaining effective control of freight costs.   Here are a few of the strategies they are employing.

Manufacturers and retailers that were wary of intermodal service in the past are giving it a try.  The intermodal numbers have been one of the bright spots in the transportation data that is published.  While still a small percentage of overall freight activity, Intermodal numbers continue to increase.  For shippers with freight moving longer lengths of haul (e.g. over 750 miles), that ship to warehouses or can take advantage of weekend transit days, intermodal service can be a cost effective option. 

With truckload capacity tight in some areas, shippers are returning to the fundamentals of freight transportation to unlock savings.  This can include revisiting their packaging configurations and loading procedures.  Wal-Mart has been one of the leaders in challenging its vendors to revisit their packaging and shrink the size of their footprints so as to allow more freight on standard 53 foot trailers. 

Shipper collaboration, even among competitors, is a trend to watch.  The recent agreement between Hershey Corporation and Ferrero, two large confectionary goods manufacturers has made headlines.  The companies will share warehousing and distribution assets to reduce truck miles, greenhouse gases and energy use.  In essence, this arrangement will result in the two companies co-loading trailers that will lower the costs to bring their chocolates to market.  As reported in a previous blog, Schneider Logistics is one company that is trying to cater to this need by creating a dedicated shared services LTL model.

In last week’s blog, I tried to capture what appears to be the sentiment of a majority of economists.  Their prediction is for slow growth not just for 2012, but also for several years after that.  In the next two blogs, I will outline some of the approaches taken by shippers and carriers to bolster profits during the upcoming slow times.  The following are a number of the strategies that are playing out among North American carriers.

Maximize Yields from the Current Fleet

It is that time of year when many companies are in the process of finalizing their business plans and budgets for 2012.  We end 2011 with political upheaval in the Middle East, a major unresolved debt crisis in Europe, political gridlock in the United States and a slowing economy in China.  The United States still has the world’s largest economy that has been an engine of growth for so many years.  The U.S. is still Canada’s largest trading partner. However, as we saw this year, GDP growth of 3.5 percent cannot last forever.

As one reflects on where we have been and where we are today, there are large question marks about the potential economic growth we will see in the United States and in those countries that trade with it. Interest rates there are down to zero.  Two big stimulus initiatives have not pulled the U.S. out of recession. The U.S. has its own debt crisis and cannot continue to spend money, at least not the way it has done in the past.

U.S. consumers that got caught up in euphoria of ever rising home prices have seen their personal debt rise from 50% to 135% of annual income. But high unemployment, high under-employment, the drop in property values, and job retention fears, have created jittery consumers.  Since consumers represent 70% of total purchases, we have a big problem.  This problem cannot be overcome quickly, no matter what leader and political party is elected next year.

The bottom line on all of this is that there is no quick fix.  There is no political party or economic policy that can turn the ship around quickly.  The U.S. cannot spend its way to prosperity or cut interest rates to give Americans the “big bang” we would all like to see.  Two prominent economic minds (Jim Allworth, Vice Chairman of the RBC Investment Strategy Committee and Noel Perry, a senior economist with FTR Associates), speaking totally independently of each other, forecast the same future - - - slow GDP growth in the 2% range for the foreseeable future. While this may not sound too bad, when compared to what we have become accustomed to, this will likely make people feel that are stuck in quicksand.

What does this all mean to truckers and shippers? The pressure to maintain lean inventories will allow manufacturing to continue to grow at a modest pace, slightly in excess of 1.5% per annum for the next decade.  This slow growth will put the brakes on any rapid expansion in freight volumes.  Capacity will remain tight as carriers exhibit caution in adding to their fleets and as more regulation in the United States, (e.g. hours of service, CSA) reduces the labor pool.  Mr. Perry forecasts a gap as large as 500,000 drivers by the year 2014.  While fuel costs have moderated, rising equipment costs and driver pay will likely put upward pressure on costs.  Rates will continue to increase albeit at a moderate level.

Wal-Mart launched a program in mid-2010 to reduce costs and deadhead miles, leverage the retailer’s logistics skills and scale, improve visibility and control of its merchandise by taking control of deliveries of inbound freight.  The company believed they could find opportunities to do the work better and at a lower cost than vendors could do under prepaid freight terms.

The shift to increased use of freight-collect terms by the world’s largest retailer, worried shippers that had been trying to leverage their volumes to secure attractive carrier pricing.  For shippers that had spent years optimizing their freight network and negotiating preferred rates, the threat of losing control of their freight to one of their largest customers became a major issue.  When program details were first released, there were reports that Wal-Mart was using some fairly heavy-handed tactics in its discussions with vendors, both in terms of not really negotiating as to what would be the best overall transportation decision, and in asking for larger than acceptable "allowances" for picking up the freight against the contractually defined price that included transportation.

Greg Forbis, a senior director in Wal-Mart's inbound transportation group, announced last week at the CSCMP annual conference in Philadelphia that the world's largest retailer has made some changes to the program.  In an unusual about-face for Wal-Mart, Forbis stated that Wal-Mart realizes that "every situation is unique," implying that Wal-Mart will discuss various options with its vendors and look for the best total solution, instead of simply mandating that a vendor move from a prepaid to collect freight program. 

Some suppliers had efficient transportation operations that Wal-Mart was hard-pressed to improve. “One of the key learnings was that we weren’t as good as they were in some cases,” Forbis said.  Wal-Mart’s discussions with suppliers on changes to its inbound transportation were “a very open book,” with discussions of how to reduce costs and improve supply networks, he said. “Some wanted to share, some didn’t want to share. Those that didn’t want to share, we just kind of move on and go to the next supplier and say, "What are our opportunities?"

Nevertheless, Forbis made a strong case that in many situations, the vendor would benefit about as much as Wal-Mart from making the transition. He noted that many vendors, for example, want to focus on manufacturing and branding, and are happy to leave logistics execution to Wal-Mart.  Recognizing this, Wal-Mart has focused on smaller suppliers where the retailer can bring its scale and expertise to bear.

This week the world lost a business and technology giant with the passing of the iconic Steve Jobs, for many years the leader of the Apple organization.  Steve Jobs’ name will forever be associated with launch of the iPod, iPhone, iTunes, iTouch and iPad, that helped propel Apple to the status of second most valuable company in the world.  In the coming days, there will be many books written about this remarkable individual and the leadership skills that he displayed. Here is my take on a few of his unique leadership skills and some of the lessons that trucking company executives should learn from him.

Steve had vision.  He understood customer needs and was able to envision innovative methods of meeting these needs.  While other company experimented with music downloads and tablet computers, they were not able to create products that were useful to large groups of customers and commercialize them for widespread sale.  He was able to assemble a team of talented individuals and mobilize them to execute his vision.  Steve could see the finish line and he was able to take Apple there.

One of the driving forces that made Steve and Apple so successful was a single-minded focus on providing customers with a superior, easy to use product or service.  Apple designed products with the customer in mind.  Every feature was planned to create an exceptional user experience.  Apple didn’t just build a customer base; they created fanatical, adoring fans. Steve would not allow a new product or service to be introduced until it met his exacting standards.   

Steve also saw how important it was to create synergy between his products and services.  The value of an iPod or IPad is the ability to easily download music or videos from the iTunes store.  He also saw the value in linking to services of other companies.  The thousands of applications designed by other companies, at their expense, to work on Apple’s products, make Apple products so much more useful.  Collaboration with business partners, while taking a sizeable cut of their revenues, is smart business.

So many trucking companies are internally focused.  They think about balancing lanes and truck utilization.  They believe that by measuring and tracking on-time service and billing accuracy, they are meeting the needs of their customers. 

In view of the troubling state of the United States economy, shippers are looking for creative ways to reduce transportation costs, specifically LTL costs.  Tight capacity and rising freight rates are making this a challenge as we head into the fourth quarter of 2011.

Schneider Logistics is offering shippers an integrated delivery service that it says can cut transportation costs for certain types of freight by 7 to 20 percent.  The logistics arm of truckload giant Schneider national that they have branded Integrated Delivery Services is consolidating less-than-truckload freight for customers with similar distribution patterns. The service is aimed at shippers, often competitors, with common routes, distribution and cross-dock locations and dispatch and delivery schedules.  Food and the large diverse national retailers represent two such target markets.

Many years ago, a similar concept gained widespread acceptance in the automotive industry.  The major North American automotive companies, working closely with their core carriers, created multi-stop milk runs that would pick up auto parts that were delivered on a just in time basis to a Ford, GM or Chrysler plant.  Selected carriers would pick up a range of complementary parts that taken together could be used on an assembly line to build cars.

The Schneider Logistics concept is a bit different.   They are calling their approach more “strategic and creative,” even to the point of sharing a dedicated tractor-trailer with a competing company. They claim that more and more shippers are willing to do that, in various ways. Other carriers have offered “shared dedicated” or “collaborative distribution” services. Some shippers look for other companies with complimentary freight to help “cube out” or more completely fill a trailer, mixing lighter weight and heavier goods.

The fact that this concept is starting to take hold is no surprise to anyone.  In fact, the surprise is that it has taken so long to gain acceptance.  The delay has been largely a result of competitive shippers being reluctant to work collaboratively with each other.  With logistics service providers becoming so pervasive over the last decade, this lessens the size of the hurdle.  A third party can pull together the participants,, manipulate the confidential data from each party, create and optimize the most cost effective routes, orchestrate the consolidated movements and pool points and arrange for the deliveries. The shipper can enjoy the benefits of a truckload movement without the headache of trying to make it happen on their own, and at a savings over standard LTL rates.

Each year, Mary C. Holcomb, Associate Professor at the University of Tennessee and Karl B. Manrodt, Professor at Georgia Southern University, in partnership with Con-way Inc., Ernst & Young, and Logistics Management conduct research and prepare an Annual Study of Logistics and Trans­portation Trends (Masters of Logistics) report.  This year the studysuggests that logisti­cians are now facing the freight transportation version of a Bermuda Triangle, one which, if left unattended, has the potential to create disastrous and inexplicable outcomes.

“For the past two and a half years, companies have been simply reacting to what some economists and financial experts are calling the ‘new normal.’ The hallmark of this new business environment is a sluggish economy that is fore­casted to grow at an annual rate of just under 2 percent. To exacerbate matters, the new normal also has unpredictable and volatile change at both the demand and supply ends of the supply chain.” 

The authors also point out that after a dip in freight costs as a percent of revenue in 2008 and 2009; this percentage is on the rise.  Shippers are being squeezed by sluggish growth and rising freight costs.  The authors characterize a confluence of three factors facing shippers as a form of “Bermuda Triangle.”  The Triangle . . . “consists of (1) a lack of planning for the impact of rising fuel prices; (2) a rigid network that is incapable of flexing when uncer­tainty occurs; and (3) a myopic internal focus that limits the enterprises’ ability to achieve the desired performance results.”

These three factors are explained as follows.  “The data from this year’s annual study suggests that ‘tried and true’ approaches are being used.  We asked study respondents about the level of maturity for a variety of actions and initiatives aimed at improving operating efficiency. The top five most mature actions are: (1) the use of core carriers; (2) the use of dedicated transpor­tation; (3) carrier tracking; (4) load planning; and (5) ship­ment consolidation.

Perhaps even more revealing is that more than half of the 22 actions and initiatives presented to participants had been completed for several years. Three other actions or initiatives that are poised to assist in keeping transportation costs in line include the use of new transportation technology; the use of ‘green’ carriers such as Smartway; and freight balanc­ing or pooled distribution.  Interestingly, the use of intermodal shipments and sharing capacity forecasts with carriers or other service providers are the top two actions currently in the planning stages.  The analysis showed that there is no predominant action or project that is being used or planned to improve trans­portation efficiency.”

There is in interesting article in the Thursday issue of the Toronto Globe & Mail that addresses the issue of the differential on the price of goods in Canada versus the U.S.  The situation has become so ludicrous that the article makes reference to Canadian manufactured goods (e.g. Ziploc bags) retailing at a higher price in Canada as compared to the United States. 

Even Canada’s Finance Minister, Jim Flaherty, is at a loss to explain the persistent price gap.  In a brief to the senate national finance committee he wrote, “Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border. . . I share this irritation.” 

Retail chains such as Costco Wholesale Canada Ltd. blame their global suppliers for charging higher prices in Canada that push up the retail prices on items such as soap and toothpaste as much as 30 percent more than in the United States.  Manufacturers blame retailers for imposing stocking fees and blame their government for imposing bilingual labels.  Nancy Croitoru, president of the Food & Consumer Products of Canada blames the variance on the higher cost of doing business in Canada due to smaller, more dispersed markets which drive up transportation costs.  

Let’s take a look at some of these arguments in light of some other data presented in the report.  J. Crew, the famous U.S. retailer opened in Canada last month with a 15 percent premium on Canadian goods and a steep tax on online purchases.  A week after they opened, they backtracked and dropped the online duty charge.  Abercrombie & Fitch, another major retailer displayed higher Canadian and lower U.S. prices on its price tags.  It backed down and made the two sets of prices equal.

Jim Saunders, a practice leader at consultancy Pricing Solutions in Toronto made this refreshingly honest statement.  “It’s really about what the consumer is willing to pay.”  Thank you Mr. Saunders for telling it like it is.  For many years, the Canadian dollar was well below the U.S. dollar in value.  Canadians have become accustomed to paying more for American made goods. 

Today’s U.S. job numbers coupled with the latest ISM manufacturing report would seem to suggest the American economy is as “flat as a pancake."  We appear to be on the precipice of another Great Recession or Contraction, if we aren’t there already.  What can we do “turn the ship around”?  This is what I suggest.

Political Collaboration and Leadership

We are currently witnessing the battle of the “job creation plans”.  Every Republican candidate for President and even some who are not running are trying to outsmart each other with their competing plans.  President Obama is going to present his job creation plan later this week.  We are going to be bombarded with rhetoric and op-ed pieces all debating the strengths and weaknesses of each plan.  Then these plans have to be captured in laws and run through the House and Senate.  This could take forever before being signed into law by the President.

Isn’t this the opportunity to break the political impasse in Washington by having the leaders of the two parties and their staffs work together to create a unified plan that is going to truly help get Americans back to work?  Isn’t this what the American people want to see, particularly after the debt crisis fiasco of a few weeks ago?  C’mon leaders, show us that you can lead by breaking out of the current paradigm and collectively making something powerful happen quickly.

Business Leadership and Consumer Confidence

This week Canadians lost an exceptional leader and citizen with the sad passing of Jack Layton, the head of the New Democratic Party (NDP), the official opposition party.   The outpouring of grief across Canada and the fact that a state funeral, a rarity in Canada, was held in his honour, is indicative of the impact that Jack had on people across the country.’

Unfortunately I never got to meet Jack Layton but I saw him speak on television many times.  I listened to the messages that he communicated and to his approach to politics and life.  Here are some of the lessons I learned from observing Jack.

Despite the fact that we had differing political views and I did not support many of his positions, I had an enormous respect for his passion, his honesty and his concern for underprivileged Canadians. Jack was a man of convictions and ideals who reached across partisan lines to work pragmatically and for the public good.  He fought for homeless people, abused women and for native Canadians who were mistreated over many years.  These constituencies do not represent large or powerful groups of voters but they were important to Jack.  The homeless were so important to him that he wrote a book on the topic. While never leader of the country, he was able to effect change that helped these groups of citizens.  He listened and cared about the people of this country, particularly of lesser means, and did everything in his power to improve their lives.

The fact that he was a Toronto-based Anglophone politician (who spoke very good French), who was able to win 59 seats in Quebec in the last election, is absolutely amazing.  One of the most lasting images of Jack during his last election campaign was of him wearing a Montreal Canadiens jersey while hoisting a mug of beer in a pub in Quebec.  While many politicians are viewed in the same class as used car salesmen, people respected Jack’s genuineness and sincerity.   Fighting Cancer and recovering from hip surgery, he fought a wonderful election campaign.   Jack was one of the boys, a fighter, who captured the hearts, minds and votes of Quebecers and many other Canadians. 

I also greatly admired his optimism and sense of higher purpose.  He ran in various elections and lost several times.  But that did not deter Jack.  He picked himself off the floor, learned his lessons and fought another day.  Often times he won.  What was remarkable about Jack’s career is that in each of the last several elections, the number of seats held by the NDP increased culminating in Jack becoming the first ever NDP leader to be the head of the official opposition party, a significant achievement.

The wild gyrations in the stock market and the continuing bad economic news, particularly on U.S. unemployment and housing prices, make one wonder if we are coming out of a Great Recession, are experiencing a continuation of 2008-2009 or relapsing into another recession. Kenneth Rogoff, the esteemed Harvard Professor of Economics and Public Policy wrote in a recent paper that “the phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts . . .

A more accurate, if less reassuring, term for the ongoing crisis is the ‘Second Great Contraction.’ This was based on  . . . (the)  diagnosis of the crisis as a typical deep financial crisis, not a typical deep recession. The first “Great Contraction” of course, was the Great Depression . .. The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete. . .

In a conventional recession, the resumption of growth implies a reasonably brisk return to normalcy. The economy not only regains its lost ground, but, within a year, it typically catches up to its rising long-run trend.

The aftermath of a typical deep financial crisis is something completely different . . . it typically takes an economy more than four years just to reach the same per capita income level that it had attained at its pre-crisis peak. So far, across a broad range of macroeconomic variables, including output, employment, debt, housing prices, and even equity, our quantitative benchmarks based on previous deep post-war financial crises have proved far more accurate than conventional recession logic.”

If Mr. Rogoff’s analysis is correct, it would explain why so many economic indicators appear to be stuck in neutral.  It suggests that truckers should be very caustious about investing in plant and equipment at a time when consumers are keeping their wallets in their pockets and the prospects for economic improvement seem so dim. The “Second Great Contraction” may take years to turn itself around.  For job seekers or even for people employed in the trucking industry, it also highlights the need to be flexible and to create options.    

Over the past several weeks, one of the trucking and logistics groups on LinkedIn has been capturing responses to the question, “How many loads are you turning down per week due to lack of trucks?” As of a few days ago, this question had received 448 comments. I thought it would be interesting to share some of the common themes with the readers of this blog.

Load Turndowns are not Tracked by all Carriers

The number of load turndowns by lane per week is an important KPI. This type of data can be very helpful in allocating capacity to those lanes that represent the best opportunity for strong yields. Some companies keep detailed statistics on this metric. A number of companies are not tracking this data and only have a “ballpark” estimate of the number of loads they are not able to handle. Data should be maintained on the type of freight, the lanes, the frequency of the loads and the rate to make sure that a company is optimizing the utilization of its fleet.

Load Turndowns are a Widespread Phenomenon

Many of the respondents are reporting load turndowns. Some are able to handle all of the volume that comes their way. This seems to be the case among LTL carriers. Among the respondents reporting capacity shortages, they range from a small number to hundreds of loads turned down per month for large carriers.

One sign of tightening capacity is the increase in loads being offered by load brokers. One respondent reported a tripling in the number of loads available from this source.