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.”