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.