This past week I had the privilege of attending and speaking at the Food and Consumer Products of Canada’s (FCPC) first ever Supply Chain Day. This well-attended event attracted an audience of some of Canada’s largest shippers. The day featured a number of Canada’s leading authorities on logistics and transportation. It also included some fascinating group discussions on some of the most challenging issues facing shippers of consumer products in Canada.

One of the work group sessions that was focused on Western Canada distribution was led by Mark Thomas, Managing Principal at Meta Management Consulting. The very animated discussion touched on many of the issues facing Canadian shippers including the trade-offs of GTA versus western Canada based warehouses, the impacts of the large retail inbound freight management programs, tightening freight capacity, freight cost increases and a host of other issues. One possible approach to address some of these challenges is for food and consumer products manufacturers, whether competitors or not, to more effectively combine their freight volumes.   This could serve to reduce costs while maintaining or improving service.

This brought to mind a recent study on horizontal collaboration conducted by eyefortransport. The study defined horizontal collaboration in the supply chain as the process where “manufacturers share supply chain assets for mutual benefit. This can include sharing distribution centres, combining truckloads or collaborating on manufacturing. The important distinction is that horizontal collaboration is co-operation across rather than along supply chains (shipper + 3PL + retailer, for example) and can even be between direct competitors”.

The author points out that “with transportation costs on the rise and increasing pressure to reduce spend, horizontal collaboration provides a unique solution to improving supply chain efficiency, asset optimisation, minimising the risk of emerging markets, and maintaining margin. The initiative is by no means a quick fix – it requires diligence, patience and internal support at all levels. However, forward thinking supply chain executives who implement horizontal collaboration now will gain a crucial competitive advantage in the years to come as opposed to those who ignore its potential”.

The study surveyed shippers, logistics providers, transport companies and consultants/technology providers. “Of respondents who have experience(s) with horizontal collaboration, a notably greater number had done so with non-competitors (95% shippers, 73% 3PLs, 45% carriers) than with competitors (68% shippers, 50% 3PLs, 30% carriers). Results also showed that a slightly greater number of respondents choose horizontal collaboration to bundle complementary goods (66% shippers, 48% 3PLs, 24% carriers), than to bundle non-related goods (48% shippers, 46% 3PLs, 21% carriers), or to share information (49% shippers, 29% 3PLs, 30% carriers). Perhaps the most interesting result was the general trend for carriers to collaborate more than 3PLs, who in turn collaborate more than shippers”.

On May 25, Dan Goodwill & Associates and the Business Information Group will co-host its third annual Transportation Company Workshop at the Capital Banquet Centre in Toronto.   The theme of this year’s conference is “Revitalizing your Transportation Business in an era of Economic Uncertainty and Social Change”.

As we begin the second quarter of 2011, there are a range of forces at play that are having an impact on the Canadian transportation industry. The economic recovery is being influenced by the turmoil in the Middle East that is pushing diesel fuel prices to $110 U.S. a barrel, a surging Canadian dollar that is now in the $1.04 U.S. range and by the growing importance of social media and new technology. The conference has been structured to help gain a better understanding of the impacts of these and other forces.

For the third consecutive year, the lead-off speaker will be Carlos Gomes, Senior Economist at Scotiabank, who will share his insights on the where the economy is going and what are the implications for the transportation industry. Carlos will be followed by Lee Palmer, President and Creative Director of Palmer Marketing. Lee will provide a “need to know” overview of B2B web marketing illustrated through real world examples from specialists serving the transportation industry. He will draw upon his many years of marketing experience in the transportation industry and address the question of “what gear is your web marketing in”?  Lee will be followed by Mark Murrell, President, Carriers Edge, who will focus on what it takes to be a “Best in Class” employer in the trucking industry.

A key part of any business is the effective management of information. Identifying the right Key Performance Indicators (KPI’s) and managing against those KPI’s can help differentiate between the top performers and the rest of the pack. The next two speakers will tackle the subject of data management head-on. Ray Haight, former Chairman of the Truckload Carriers Association and current CEO of ATBS Canada will address the subject of Benchmarking and talk about the opportunity to be a Best in Class trucker by participating in a Benchmarking Group. Ray will be followed by Brooke Martin, Senior Solutions Consultant, Process Fusion Inc. who will speak to the tools that are available to better manage trucking company data. You can only manage what you can measure.

Last year’s shipper panel was one of the most popular features of the Workshop. In an effort to provide all attendees with a better understanding of shippers’ requirements as we move through the balance of 2011, two panels have been assembled, one with some of Canada’s leading retailers and another with a panel of leading manufacturers. The retail panel will include Robert Wiebe, Senior Vice President, Transportation & Logistics, Loblaw Companies Inc., Heather Felbel, Vice President, Supply Chain, Indigo Books & Music Inc. and Ginnie Vensolvaitis, Director, Transportation Operations, Hudson’s Bay Company. The manufacturer panel will consist of Mike Owens, Vice President of Physical Logistics, Nestle Canada Inc., Chris West, Director, US Transportation Operations, McCormick & Company Inc., and Todd Kostal, Director, Purchasing/Logistics, Atlantic Packaging Products Inc. The two panels will be moderated by Lou Smyrlis, Editorial Director of MotorTruck Fleet Executive magazine.

Freight rates are on the rise in 2011. These increases are being driven by a broad range of forces including tightening capacity, driver shortages, increasing fuel costs, government regulations, improved carrier costing systems and cost increases.   To mitigate these increases, the onus is on shippers to do everything possible to skilfully manage their freight programs.

In 2006 I wrote an article entitled “It’s all in the Numbers”. In that piece I highlighted the need for shippers to manage their freight data effectively. Detailed, quality shipment data can allow shippers to identify consolidation opportunities, to address chronic operational inefficiencies that result in accessorial costs, to highlight “maverick” spend (e.g. carriers being used that are not listed in routing guide) , to rectify the use of use higher cost modes and to create opportunities to construct round trips and triangles.

Five years later, these issues are still prevalent with many shippers. In fact, the situation has become even more acute. As business volumes increase, smart carriers are focusing on yield management, the process of maximizing profitability on every lane. Shippers that are paying rates below market levels are being targeted for rate increases or risk being “fired” by their carriers. As reported in last week’s blog, manufacturers are also facing increased pressure from large retailers to convert their prepaid programs to collect and let their customers manage the carrier relationships.

Shippers with poor quality shipping data and inaccurate freight cost data place themselves in a vulnerable position. Here are some things to look out for.

Freight Density

Wolfe Trahan & Co. is a Wall Street research firm that has a strong focus on freight transportation. Each quarter they survey several hundred American shippers in a variety of industries and create an extensive report that documents their findings.

The Q1 2011 report, issued in March, summarized data collected towards the end of the fourth quarter 2010. Excerpts from the report were captured in a recent Supply Chain Digest On-Target Newsletter. Among the highlights, shippers are expecting freight rates to rise significantly over the next 12 months with the overall average in the range of 6.5 percent (including fuel). This reflects increases in both shipping volumes and freight rates. They also see the supply/demand pendulum swinging back in the carriers’ favour. Shippers predict the highest rate increases over the next 12 months in intermodal, followed by ocean shipping, truckload carriage, and rail.

Capacity has been a hot topic over the past year. Despite the recent improvements, however, a strong 77% of respondents expect to see very tight or somewhat tight truckload capacities over the coming year. Wolfe Trahan says this is the highest number seen on this measure since mid-2004, and notes that was followed by a multi-year pricing upswing for the carriers and a mini-"capacity crisis" in 2005-06. The company believes some of the concern about TL capacity stems from what shippers perceive as the potential impact of new U.S. government regulations, specifically CSA 2010 and proposed new changes to current Hours of Service rules. The report found an amazing 92% of shippers were opposed to changing the current maximum driving time of 11 hours down to 10, as the U.S. Federal Motor Carrier Safety Administration is considering right now.

Shippers expect truckload rate increases before fuel surcharges to average 3.1% over the next 12 months. On the LTL side, the vast majority see the market right now as "balanced"; with only 6% perceiving tight LTL capacity.

As a result of the combined impact of tighter truckload capacities and higher rates, shippers expect a rather significant increase in the percent of their freight volumes that will go intermodal. Thirty-eight percent of shippers are looking to move more freight via intermodal versus over the road truckload, up from 30% in Q3. Another 16% said they had already moved freight from truck to intermodal over the past year. This was the largest shift from truck to rail since mid-2008. About 36%, however, said they would not move any freight away from trucking because intermodal shipping did not meet their business or transport needs.

Over the past few years, inbound freight management has taken hold like a new weight loss diet, particularly among Canada’s leading retailers. As I visit our clients on an ongoing basis, this subject is one of the hottest topics of discussion. Many of Canada’s leading retailers including Shoppers Drug Mart, Home Depot, Loblaw Companies and Wal-Mart, have all picked up the baton and have been running with it with varying degrees of success. Inbound freight programs are also being implemented in other industry verticals including fast food (e.g. Tim Horton).

The attraction to these big players is easy to understand. The large freight volumes these companies control provide them with leverage in carrier negotiations. They also create opportunities to reduce costs through more effective loading and transportation processes (e.g. delivering full truckloads of LTL freight versus multiple deliveries of LTL freight, providing backhaul for a private fleet). Through aggressive and effective management, large retailers can achieve significant reductions in freight costs.

For vendors to these large retailers, these initiatives create challenges and opportunities. They permit or push shippers with limited expertise in managing freight transportation, and modest volumes, to step aside and allow their more experienced and powerful clients to take control of their inbound freight. Vendor acceptance removes the responsibility for late deliveries and customer fines.

Of course, this all comes at a price. Inbound freight management is a profit centre for these retailers. The differential between the carrier freight allowances paid to shippers and the cost of the transportation paid out to the retailers’ designated carriers flows right to the retailers’ bottom line.

The range of acceptable vendor responses to these programs varies from one company to another. There are some major implications in giving up control of outbound volumes to large customers. First, the shipper may face higher freight costs and lower margins on this block of business. Second the shipper is faced with retaining control over a reduced volume of freight. Less leverage can mean higher freight costs on the remaining volume. Third, it may become costly to maintain a viable transportation department when their task is to manage a much depleted volume of freight.