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One of the most frequent complaints I hear from carriers, in person, on social media, or at conferences, is about the number and quality of freight bids that they receive. Carriers complain about the poor quality of the data, the number of carriers in the bid, and about the lack of professionalism in the bid process. They also assert that if the shipper would just meet with them face to face, rather than through a bid process, the result would be more successful for both parties and would take a lot less time, money and effort.

My company has designed and executed many successful bids over the past fourteen years. We have learned that for many shippers, success comes from getting “your house in order” before executing the bid. This is what is involved.

Many shippers have been moving the same freight, to the same consignees, using the same processes, for several years. In their haste to put their freight out for bid, they overlook certain aspects of their business.

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Much of the work we do at Dan Goodwill & Associates starts with a phone call or e-mail from a President, CFO or Vice President of Logistics or Transportation. One of the first questions that we are asked is can your firm help us reduce our freight costs.

The answer is usually yes. Unfortunately, we are not able to wave a magic wand. Effective freight cost management comes from taking some concrete steps. Here they are.

Centralized Command and Control

Many of our clients have grown through acquisition and/or organically. They have manufacturing and distribution facilities in multiple locations. These sites are often managed individually by local logistics managers who each use a set of preferred carriers. By not consolidating shipments, by moving LTL freight daily and by using a variety of carriers, they sub-optimize on freight cost management.

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A little over a year ago, I wrote a blog entitled “How do you know when it is time to conduct a freight bid?” (http://www.dantranscon.com/index.php/blog/entry/how-do-you-know-when-it-is-time-to-conduct-a-freight-bid ). In that blog, I outlined a set of general conditions that shippers can use as a guide to reach this decision point. Half way through the first quarter of 2017, I find myself thinking about this issue again. Here’s why.

The stock markets in North America are hitting record levels on an almost daily basis. Usually this is a sign of good economic times ahead. The US Consumer Confidence Index in December of 113.7, reached its highest level since 2001, a sure sign that people are ready to open their wallets and buy things. The National Purchasing Manager’s Index increased to 54.7% in December 2016, an increase of 150 basis points over the previous month and the 91st consecutive month for growth in the overall US economy.

The Shippers Conditions Index for October 2016 increased to a neutral reading of 0.4. FTR, an American transportation consulting service, expects that shippers will see a couple more months of neutral market conditions before they may be impacted in the latter half of 2017. The impact would in part be due to potential capacity issues stemming from the Electronic Logging Device (ELD) implementation scheduled for the end of 2017.

ACT Research’s For-Hire Trucking Index sees freight rising faster than capacity, increasing the gap to levels not observed since 2014. January freight volumes for TransCore’s Link Logistics continue an upward trend after a surge in freight volume in December 2016. Although the record for highest load volumes for January was set in 2014, last month’s load volumes are the second highest recorded for the month of January, and compared to last year load volumes have leaped 43% year-over-year.

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Last week I wrote about the consolidation that is taking place in the freight transportation industry in Canada. Thank you for the many positive comments and feedback. I hope the blog has stimulated some thought about the level of competition in the industry, in view of its domination by some very large players.

One of my longstanding colleagues in the industry, who runs an independent transportation operation in Canada, reminded me that there are a range of very fine companies that compete with the industry giants. As a follow-up to last week’s blog, I thought I would provide an overview of the competition in each sector.

As a starting point, I went back over the top 100 for hire fleets in 2016 as published in Today’s Trucking. They range from Canada’s largest trucking fleet, TFI (TransForce International) with over 26,000 pieces of equipment and almost 25,000 employees to the 100th largest company, Transport Matte, with 321 pieces of equipment and 135 employees. It should be noted that there is a steep falloff after you go from TFI to even the second-place carrier, Mullen Group, that has 13, 645 pieces of equipment and 4410 employees. Clearly, TFI is in a class by itself with not just the most trucks but with by far the largest number of fleets under one roof.

The other big fleets highlighted in the previous blog (i.e. Manitoulin, Day & Ross, Mullen) have also grown disproportionately large through a combination of organic growth and/or acquisition. A glance through the top 100 list displays a range of companies, large and small. So let’s take a look at the major freight transport sectors in Canada.

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The subject of online freight bids and internet freight auctions came up a few times at the Surface Transportation Summit that took place in Toronto on October 13. The carriers that raised this topic spoke of the high volume and poor quality of bids that have been hitting the transportation industry this year. One carrier was so fed up with the internet auctions in which they were participating that they made a decision to opt out of them.

It is clear that where there is a market opportunity, there are a multitude of companies that are seeking to meet the needs of unsuspecting shippers. It was apparent from the carrier comments that there are a number of unqualified or underqualified, unprofessional providers, some with very limited expertise, who are providing an unsatisfactory service to their customers and a disservice to the industry. These are some of the issues that were brought to light.

There are bids on the market where the carrier is being asked to quote on 6000 lanes of traffic, a massive undertaking. In one case, the carrier was provided with shipment data that stated that there are 1600 truckloads of freight that move on a particular lane each year. The carrier that is the incumbent, looked at their data and noticed that they move only 160 LTL shipments on the particular lane each year.

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Some large LTL carriers have announced rates increases this fall. Old Dominion, XPO Logistics, YRC Freight and UPS Freight have all declared 4.9 percent GRI rate increases on non-contract LTL freight that took effect in September. In survey after survey, shippers have claimed that cross reductions are their number one priority. How can these two conflicting strategies be resolved?

It is important for LTL shippers to realize that LTL carriers are serious about making these increases stick. Despite somewhat muted demand for LTL service, carriers are making a determined effort to secure these increases.

One of the major reasons for the focus and discipline is balanced capacity. Most of the large LTL carriers shrank their networks considerably in the aftermath of the 2008-09 recession. As a result, there’s not a lot, if any, excess LTL capacity. Yield management is the priority this year. With limited capacity, there is little value in triggering a price war. A race to the bottom does little to help carriers raise their margins. LTL carriers are looking at their margins per lane and per account and taking action on contracted and non-contracted freight to improve yields. What can shippers do to mitigate these GRI increases?

For companies that have significant volumes of freight, they can put their business out for bid, leverage their volumes and sign multi-year contracts with minimal rate increases in subsequent years. There are a number of Best Practices that can be employed to make your freight bid a productive process (http://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions ). For shippers that routinely do this on an annual or bi-annual basis, there are other avenues to pursue.

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The first blog in this series looked at the money saving opportunities for organizations that take control of Inbound Transportation. This blog will outline a series of steps that need to be taken to make this happen.

A Commitment to Act

In the last blog, it was highlighted that some vendors place a mark-up on their outbound freight costs (viz. your company’s inbound freight expenses) and pass it on to their customers. It is important for every company that receives inbound freight to understand the following.

A trucking company adds a mark-up to their costs in order to come up with their freight rates. A freight broker and/or logistics service provider will take the carrier’s rate and add another mark-up. In other words, by the time you receive shipments from your vendors, they may have from two to four mark-ups added to the basic cost.

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b2ap3_thumbnail_dreamstime_xl_31478542_20160826-151328_1.jpgDuring this period of modest economic growth and ample capacity, freight rates have been in decline. This is confirmed by the various market indices that track freight rates. Lower energy prices that have translated in lower fuel surcharges have also helped keep freight rates in check. The data also indicates that some shippers are switching modes and moving from intermodal back to highway service to obtain faster service at more attractive rates. Looking ahead to the future, 54 percent of the trucking companies responding to a recent Inbound Logistics survey expect static growth in the near term.

Despite the drop in freight rates, 75 percent of shippers surveyed in the same study stated that reducing transportation costs is their top priority while only 38 percent indicating that finding capacity is a challenge. The static economy and low energy prices would appear to be creating a “perfect storm” for shippers seeking to meet their greatest challenge. The danger for shippers is to get greedy as many did during the Great Recession. We remember seeing shippers bid their freight multiple times a year in the hope of continuing to drive lower freight costs. While we are big believers in the value of high quality freight bids, we are also a strong proponent of the old adage, “you get what you pay for.”

We all know that just as there are cycles in the stock market and the housing industry, there are cycles in the freight industry. What goes down will go up again. Shippers that surround themselves with “bottom feeder” carriers at discounted rates will likely have a rude awakening when the market turns. Moreover, with new government regulations coming into play and the volatility of fuel prices, capacity will likely tighten and freight rates may rise sooner than later.

So what should thoughtful shippers do to manage their freight costs as smartly as possible? As stated above, we still believe that conducting a professional freight bid exercise, once a year or every two years is a wise thing to do. For shippers that include a range of quality carriers and logistics service partners in the RFP and conduct multiple round events, this is still a great way to secure savings in freight costs.

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b2ap3_thumbnail_dreamstime_xl_24936632.jpgOnce you gather the necessary data outlined in the previous blog (http://www.dantranscon.com/index.php/blog?view=entry&id=229 ), it is time to take action. Here is a set of steps to follow to save money on accessorial charges.

Set up a cross-functional team

As you will realize when you review your research notes, it will often take a number of parties (sales, production, and warehouse management) plus the customer in many cases and your carriers to address how to reduce accessorial charges. Once you assemble your cross-functional team, have a meeting to share and discuss your findings and create cost saving targets, action plans, persons accountable and timelines.

Create a report to track success on a monthly basis. Share the report with key stakeholders and follow up with any stakeholder who does not fulfill his/her responsibilities.

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b2ap3_thumbnail_dreamstime_xl_66940210.jpgIt 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.

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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.

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In my last blog, I outlined a set of tips to help carriers achieve greater success with Freight Bids. Here are a few more.

Put your best foot forward early in the process

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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.

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Final Reflections on Freight Bids

Posted by on in Freight Bids

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Freight bid projects have become one of the most commonly used methods of sourcing freight transportation services over the past two decades. They have become popular with shippers for obvious reasons. When done well, they produce good results. Manufacturers and distributors can strengthen their supply chains by selecting a dedicated group of professional transportation companies and save money on freight costs.

The carrier perspective on freight bids is often quite different from that of most shippers. They tend to dislike them for several reasons.

1. Many bids are not well done.

2. The process of responding to these bids is a lot of work and they often don’t produce any business.

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Some shippers operate under the misconception that once the bid awards have been made, the RFP process has been completed. This is not the case. There is another critical step that can “make or break” the bid process. It is absolutely essential, particularly in multi-plant companies, to have a process in place, immediately upon implementation, to monitor routing guide compliance.

There is an old adage in business that you cannot manage what you cannot measure. This fully applies to the implementation of freight bids.

Never underestimate the power of human relationships. Tickets to sporting events, golf outings, annual fishing trips or vacations at a carrier’s summer or winter residence can do wonders to dismantle the work of a freight bid. In our work we have seen companies use low ranked carriers, or even carriers not listed in the routing guide, to move their freight. To maintain certain long standing carrier relationships, some shippers can and will find reasons to make a switch back to the incumbents.

We would recommend that you not conduct a freight bid until your company is able to put in place some form of reliable compliance tracking. Even a weekly spreadsheet that displays by lane, the carriers moving the freight that week and the reasons for replacing a carrier in the routing guide, would be a helpful tool.

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As the freight bid process comes to conclusion, there is an urgency to award the business so the shipper can begin enjoying  the cost savings that were achieved. While this is understandable, it is important to keep several things in mind.

First, if business is being awarded to new carriers, they need to come up a learning curve before they are as experienced as the incumbents. Second, some new carriers may have over committed during the bid process and are not able to perform at the expected level. For example, they may only serve certain lanes on particular days of the week or they may not have enough head haul or back haul traffic to bring their equipment back as quickly as expected.

Sometimes the shipper is at fault by not identifying the full scope of their requirements during the bid process. The company may have forgotten to disclose or incorrectly assumed that every carrier can make an 8:00 AM pickup or delivery every day. When informed, the carrier may determine that the best they can do, with their network, is effect a 10:00 AM or 11:00 AM delivery but no earlier. This may not be satisfactory for the shipper since they may need the freight early in the morning so they can dispatch their delivery vans at 8:00 AM to provide the service demanded by their clients.

We suggest that you test market at least some of the new carriers while keeping the existing carriers in place on those blocks of business. In other words, share the freight until such time that the new carriers have demonstrated that they can meet the service requirements. Guide the new carriers through the transition in order to increase their odds of success. Remember that this will create a win/win situation. This is also a good test of the professionalism of your incumbents.

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In an RFP, the carriers are being asked to bid on specific types of freight moving on specific traffic lanes. The rates they quote are based on the freight descriptions that you provide. It is essential that all aspects of the freight be documented in sufficient detail so as to ensure the quotes received are an exact match for the freight being shipped. These are some of the areas that require their input.

a) What do typical shipments look like (e.g. pallets, pieces, a combo, drums, totes etc.)?

b) What are the precise dimensions and weights of the freight?

c) How is the freight loaded and unloaded (e.g. crane, fork lift, lumper service, side loading, apartment deliveries etc.)?

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As we approach the end of February, most truckers would acknowledge that this is a good year for the North American motor carrier industry. Business volumes remain strong, in fact stronger than they have been during the first few months of prior years. Supply and demand remain in pretty good balance. Capacity is tight as experienced drivers remain in short supply. Low diesel fuel costs are keeping this operating expense in a more manageable range than it has been in some time. For Canadian manufacturers, the eighty cent dollar is helping drive exports to the United States. Many shippers are receptive to rate increases to ensure they retain their core carriers. There hasn’t been a better time in years to improve yields.

In the past, truckers would go to their low margin accounts during the good times and seek a significant rate increase or de-market some accounts in the hope that new, more profitable accounts would be added. As economic conditions worsened and revenues declined, these same truckers would often go back to the accounts they de-marketed and then try to re-secure them. This feast or famine approach to yield management did not appreciably improve the business on a long term basis. Some companies have learned from experience that there is a better way. During these fairly buoyant times, the opportunity exists to make some significant and sustainable improvements to the bottom line of your trucking business. Here’s how.

Get an Accurate Reading on the Margins on all of your Accounts

If you haven’t invested in a good cost accounting system, now is the time to do so. As a starting point for any yield management initiative, it is critical that you don’t guess at the margins of your accounts. A good costing system will supply you with high quality estimates of the margins of your clients. The system should supply you with a list of your accounts in descending order by contribution margin by lane. There is a need to fully understand what is driving these numbers.

Which specific costs are contributing to the low margins on some accounts? Does a particular account incur too much waiting time? Is the freight difficult to load? Does the driver have to incur too many out of route miles to pick up or deliver the freight? Are the costs in line but the rates are non-compensatory? Do the rates not sufficiently cover fuel or accessorial charges or freight density? What are the factors that are producing an inadequate return on the account? Where do the rates have to be to achieve a satisfactory yield on the account? This will serve as a partial roadmap as to where improvements are required.

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This year, major freight carriers have been seeking general rate (GRI) increases, higher fuel surcharges (at a time when energy prices are at their lowest levels in years), accessorial charge rate hikes and the implementation of dimensional LTL pricing. In other words, shippers, particularly in the small parcel and LTL sectors are facing a barrage of rate increases in 2015.

This brought to mind some words of wisdom I heard from Jerry Hempstead, President of Hempstead Consulting during the Logistics Management 2015 Rate Outlook webinar. Jerry made the comment that when it comes to freight rates, shippers “don’t get what they deserve, they get what they negotiate.” This sage advice has stayed with me since the call and is the inspiration for this blog. Here are a few thoughts to consider.

Data is Power

Shippers without good freight data are virtually defenseless in rate discussions. If you don’t have accurate data on the density of your freight, you are at the mercy of freight companies, their scales and dimensioning devices. If you don’t have quality data on your volumes by lane and on the various components (e.g. line haul charges, fuel surcharge, accessorial charges) of your freight spend, you are not able to able to manage your freight and communicate effectively with your carriers.

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Here are few statistics to consider. On June 27, 2014 a barrel of crude oil cost $107.26 U.S. On the same date, a gallon of diesel fuel cost $3.91 in the U.S. or $1.35 per liter in Canada. The cross-border (Canada/U.S.) fuel surcharge was 20.1 percent on LTL, 47 percent on truckload.

Last week, the price per barrel dropped to $50 while the price of diesel fuel fell to $3.13 in the U.S and $1.18 per liter in Canada. The cross-border fuel surcharge fell to 13.4 percent on LTL and 31.6 percent on truckload. This week the cost per barrel is trending below $50. The cost per barrel has dropped by over fifty percent in the past six months. In the same period, fuel surcharges have declined by about a third. Here are few thoughts that shippers need to keep in mind.

1. Shippers will receive a freight cost saving windfall in 2015

An energy expert suggested this week in Forbes magazine that we may see the cost of a barrel of diesel fuel fall to as low as $20 this year. While no one knows what the bottom is or how long energy costs will remain at these levels, the end result will be an unexpected cost saving bonanza for shippers. Enjoy it as long as it lasts.

2. What comes down will go up

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