In last week’s blog, my panel of three expert drivers spoke out on the topic of driver shortages and compensation.  In this week’s blog, we will explore the topics of recruiting, training and student drivers.

Let’s talk about recruiting.  What are your thoughts?

“Just last week I read a recruiting ad that claimed that team drivers could make $100,000”, commented Desiree Wood.   ‘Could’ is the operative word I suppose but in reality the context of the ad was to mislead. The ad was for a lease program which depicted 2 people at a carrier known for extremely low pay to drivers but their recruiting ads tell a different story. The ad does not say what costs will be paid back to the carrier from the gross “could make” amount, if the lease payment is based on both people . . . (driving) . . . or other hidden charges. This is a carrier that should be training candidates to become qualified drivers but instead they are selling trucks to people who know very little about what the trucking industry is really all about.

Drivers are bombarded with less than accurate information and this lack of respect is a contributor to industry burnout among qualified candidates hoping to make truck driving a career.  There are many qualified men and women in the trucking industry already that remain at poor paying carriers until they burn out simply because they cannot trust carriers to deliver the pay or benefits they advertise. . .

It is stressful to be away from family support, work long unpaid hours in extreme weather conditions and have to share difficult living situations while having to adjust to odd sleep schedules.  When candidates are recruited into truck driving, frequently they are unaware of all of these factors, nor  (are they aware) . . . that they will be expected to drive 11 hours per day on top of the unpaid labor they have performed.  Truth in Logistics would help define qualified candidates but this common sense approach takes aim at the inner commission structures in the recruiting and student trucker industry.

I have been writing a blog on a variety of freight transportation issues for the past 5 years.  None has generated as much feedback as my two postings on the subject of driving a truck and driver shortages.  While my blogs can be read in multiple locations, the two recent ones on this topic have received over 2500 hits and 60 comments on the Truck News site alone, many from drivers. 

I have read all of the comments and they encouraged me to reach out to some folks in the field to do a “deeper dive” into the “driver shortage” issue.   As a result, I contacted three truck drivers and sent them a list of questions.  David Robson was the one who helped me write the article on a “Driver’s Perspective on the Current State of Trucking.”  The other two (e.g. Stephen Large, Desiree Wood) are prominent truckers who took the time to share their feedback on the blog.  Here are their thoughts.

One of the recurring themes that I kept hearing is that despite the common perception that we have a “driver shortage” in North America, this is not an accurate description of the current situation. So my first question to the three drivers was to obtain their thoughts on this question.  Do we or do we not have a driver shortage?  Here is what they said.

Dave stated, “I feel we have a driver retention problem that is created by a lack of extensive driver orientation and training from the hiring trucking companies. This leaves the newly hired drivers to learn the company and driver policies on their own. In their frustration they find it easier to quit and move on. I am sure that the compensation was acceptable when they agreed to work for the company.

Problem number two I feel is driver dispatch compatibility. Many dispatchers are not people oriented and therefore drivers cannot work with their dispatch and again find it easier to quit and move on.”

This week I had the opportunity to participate in a Logistics Management webinar that featured Adrian Gonzalez, Director, Logistics Viewpoints, as one of the 4 speakers.  Adrian spoke on the topic of Social Media in Supply Chain and Logistics.  This is what he had to say.

Social Media are tools for communicating and collaborating.  Citing data from an October 2011 Adelante survey, Adrian commented that a large block of respondents (e.g. over 40%) agreed with the statement that Social Media will transform supply chains (for the better) in ways that we cannot envision today.  Young professionals, the key early adopter segment, are using them today primarily for Business to Consumer branding and marketing.  In his view, we are at an infection point where the emphasis will shift to Business to Business external and internal communication and collaboration, at all levels within organizations.

The world of smartphones, tablets and social media are coalescing and from this integration, new features and applications are taking shape.  E mail communication, at least for your professionals, is being superseded by texting and social media communication.  Adrian argued that “public” social media tools will become integrated with “enterprise” social media tools leading to faster connectivity and enhanced business integration.

Don’t be afraid of them and don’t ignore them since we will all be using them sooner rather than later.  He related the current infatuation with social media to our interest in the internet in the 90’s.  Smartphone usage, E mail communication and internet access have become second nature in the intervening years. He also suggested that we should look beyond Facebook, LinkedIn and Twitter.  He highlighted You Tube, Instagram, Pinterest and Foursquare as other media to investigate.  New social media tools are constantly emerging.

He cautioned against focusing on the buzzwords (e.g. LinkedIn).  Adrian suggested focusing on what needs to be done and then employing the social media tools that are the best fit for each organization.  Over the past few years, we are witnessing the rise in popularity of Skype for business, web meetings, blogging, RSS feeds and other mechanisms that foster teamwork and instant communication.  As was the case with the internet in the 90’s, it is helpful for less experienced users to seek out mentors from the younger professionals on the team.  They are often the most knowledgeable and sophisticated users. 

The proxy battle at CP Rail is unprecedented in Canadian business since it resulted in the resignation of the company's CEO and 4 directors.  It is hard to recall another proxy battle in recent history that produced such a profound and dramatic result.

It is easy to discount what happened at CP Rail as the result of the work of a determined, experienced shareholder activist who was able to convince other shareholders that the company could achieve superior financial performance with a new executive team.  If that is the only takeaway from this “palace revolt,” that would be unfortunate.

From my perspective, there is so much more to learn from the changing of the guard at CP Rail.  The fact is that CP Rail was an “underperforming” company in its segment of the transportation industry for a long time.  A rail renaissance has been under way for more than a decade.  Smart investors like Warren Buffet and more recently Bill Ackman realized that there are only 7 class 1 railways in North America and that there are large barriers to entry.  As an oligopoly, the industry has huge pricing power.  As energy prices rise and driver shortages increase, rail transportation becomes a very cost and service competitive option to trucking.  Moreover, many truckers are converting much of their long haul and even medium haul (e.g. 500 miles) movements to rail.  The growth prospects for rail are excellent.

One cannot criticize the CP Rail CEO, a CP Rail “lifer,” who was ousted, and his team, as inexperienced railroaders.  One cannot criticize the chairman and the board of CP Rail as not being a “blue chip” group of experienced business leaders.  The “rub” is that this team did not keep pace with where the industry was going.  An inbred management team coupled with a “clubby” board did not produce results in line with other top performing railroads.  It took an activist investor to shake the tree to remove some of the apples.

The question is what would have happened at CP Rail if Bill Ackman had not come along?  How long would the company have continued to drift under its leadership team?  How many other public transportation companies are in the same position?

Carriers and the transportation media have laid out a compelling case as to why transport companies should be receiving rate increases in 2012.  As the Great Recession of the late 2000’s unfolded, shippers put significant pressure on their carriers to roll back their rates.  For many carriers, rates have not returned to pre-recession levels.  The driver shortage is putting upward pressure on driver pay.  Government regulations (e.g. CSA, HOS) are being cited as some of the causes for a shrinking driver pool.  Despite the recent easing in fuel costs, petroleum costs have also been on the rise this year.  The increased cost to purchase insurance and upgrade fleets are driving further cost increases.  Shippers are being told to accept the proposed rate increases to ensure they have available capacity if the economy begins to grow at a more rapid pace.

These are compelling reasons and the various Canadian and American rate indices suggest that shippers are consenting to rate increases.  What can shippers do to help mitigate these increases in their supply chain costs?

Here are a few suggestions.  In my last blog I outlined a number of steps that shippers should take.  These include looking inward at their current packaging, taking advantage of consolidation (e.g. combining small LTL shipments into larger shipments), modal conversions (e.g. over the road truckload to intermodal) and other related opportunities to reduce costs.

Every shipper should also look outward at the market rates for their freight.  An annual freight bid that goes to an extended range of carriers and logistics service providers is also a must to ensure the company is paying competitive rates.

The operating ratios of publicly traded transportation companies are easy to access.  While costs have certainly gone up for most transport companies, one of the “dirty little secrets” of the Great Recession is that many costs have gone down.  Many trucking companies parked equipment, reduced wages, changed their operations (e.g. switched some long haul trucking business to intermodal) and improved their efficiency.  In other words, they adjusted their cost base to correspond with their reduced volumes.  This begs the question of what level of increase should a shipper accept?

In the most recent Transportation Buying Trends Survey undertaken by Canadian Transportation & Logistics magazine, there is an interesting set of questions that pertain to fuel surcharges. Over 68% of shippers support the view that “fuel surcharges are necessary as long as fuel costs continue to be highly volatile.”  Slightly less than half of the survey respondents believe “carriers apply fuel surcharges correctly.”  Over 61% agreed with the statement that “fuel surcharges are a way for carriers to squeeze additional revenues from their customers to improve their profits.”  Over 55% of shippers support the view that “carriers should adjust their freight charges to market rates that include fuel surcharges and as a result simplify their billings.”

Perhaps the most interesting finding is that 25.8% of shippers have created their own fuel surcharge index.  Since I interact with both shippers and carriers in my daily work, I would like to weigh in on this topic.  This set of responses begs a few questions.  Should shippers be taking their precious time to create fuel surcharge indices and formulas?  How should shippers approach the topic of fuel surcharges?  What should shippers do to optimize their freight costs?  Here are my thoughts.

For shippers that use both private fleet and for-hire carriers, it is essential to be fully informed on all aspects of fuel costs and fuel surcharges.  Even for carriers that use exclusively third party carriers, there is a requirement to have some familiarity with the leading indices and the current surcharges being applied.  For Canadian and cross-border shippers, a subscription to the Freight Carriers Association of Canada’s weekly fuel calculation bulletin will provide you with one of the industry standards for LTL and truckload shipments.  For shippers that use intermodal service or are considering it in their freight programs, they should obtain a copy of the railway/IMC fuel surcharge formulas.  These differ (e.g. are lower) from the over the road surcharge numbers.

The next thing a shipper should do is to gain an understanding of the components of a freight rate.  One needs to understand that a carrier’s freight rate or tariff is based on several components.  There is the cost of pick-up and delivery, the line haul component, the cost for any special handling (e.g. residence, construction site deliveries, etc.) and of course, the fuel component.  For LTL and small parcel shipments, there are a number of other variables that come into play such as shipment weight, density, cube, packaging etc. 

Shippers need to understand that each carrier has its own mix of freight, its own fleet size and specifications (e.g. straight trucks, tandems, tridems etc.), its own head haul and back haul requirements in terms of both yield and volume and its own primary and secondary markets.  In other words, fuel costs and surcharges are a large piece of the puzzle but they represent one element of a carrier’s total cost structure.  At the end of the day, the carrier looks at each shipper’s freight and relates it to their costing model, business requirements, profit objectives and of course, market rates to determine their rate structure.

The world of freight transportation is changing rapidly.  The signs are there and they are unmistakable.  Recognizing and responding effectively to these signals may help determine which shippers and carriers will survive in the years ahead.  Let’s examine the components of the new paradigm of freight transportation.

The Era is Cheap Oil is Over

The steep escalation in fuel prices this year is a harbinger of things to come for shippers and carriers.  This time there will likely be no major recession to bring energy prices down.  The sad fact is that 95 percent of transportation modes, passenger and freight, run on petroleum products and the likelihood of finding new sources of supply or of shrinkage in global demand is highly unlikely. In fact the use of petroleum in countries such as China and India is on the rise.

The result will be tighter truck capacity, greater use of intermodal rail services, the electrification of transportation systems, the relocation of factories and distribution centres and the slow shift to cleaner, cheaper fuels.  It will drive more LCV’s (long combination vehicles) or “turnpikes” and more triple trailer configurations.  This may be the impetus to harmonize our laws throughout North America to remove barriers to the movement of the most energy efficient vehicle combinations across our highways.   To curb use, many countries will have to begin looking at the Danish example of higher taxes on fuel inefficient vehicles and higher taxes on petroleum.  Get used to it.

The Driver Shortage is Real

This is a very interesting year in the world of freight transportation.  The economy is improving but at a very slow pace.  Supply and demand for freight transportation services are pretty much in balance.  Trucking companies are all singing the same song.  Their number one problem throughout North America is finding qualified drivers.  Carriers are replacing equipment that comes to the end of its service life but are not making additions to their fleet for potential growth.  Adding capacity without the drivers to move the rigs and customers that commit to provide the freight is not a sound business approach.

Carriers are being very strategic in how they allocate their capacity to their customer base and to uncommitted prospects.  Improved asset management technology is allowing transport companies to manage their fleet more effectively and to pinpoint (and charge for) abuse.  Freight rates are on the rise.  This is confirmed by some of the better known published freight rate indices.

While the pendulum has not totally swung back in the carrier’s favour, it has certainly tilted in their direction.  Shippers are not having the same easy time reducing or controlling their freight rates as they did during the Great Recession.

While freight bids are still prevalent, there are less of them in 2012.  Some shippers are receiving a rude awakening.  Shippers that put their freight out for bid to the same core group of carriers as they have in the past, run the risk that the result of the exercise will be higher rather than lower rates.  For shippers that cannot find the capacity and rates they are seeking, they run the risk of an even nastier surprise if they put their business on the spot market.  Freight that may have moved for $1.30 a mile may be moving at $2.00 a mile on the spot market.

What can shippers do to mitigate freight rate increases in 2012?  For companies that have not put their business out for bid in the last couple of years, it always worth testing the market with a high quality RFP that is sent to a broad range of carriers and logistics companies. 

This past week I had the opportunity to speak with some of North America’s leading truckers.  Other than the “head shots” in this year’s National Hockey League playoffs, the other number one topic of discussion on everyone’s mind is the issue of driver shortages.  I also had an opportunity to read what the Canadian Trucking Alliance labels “a new, eye-opening report” from the Blue Ribbon Task Force they established in 2011 to address the impending shortage of qualified commercial drivers in Canada. 

In this blog, I would like share a few thoughts on this hot topic.

The problem is real

There are some shippers who believe that this issue is manufactured by the trucking industry to help sell freight rate increases.  Let me assure my shipper friends that this is not correct.  Trucking companies all over North America are having difficulty attracting “qualified drivers.”  By this term we mean skilled professional drivers or people interested in becoming professionals. 

This shortage is being created by an aging workforce, lifestyle issues (e.g. having to spend time away from home), a lack of interest from women, the challenges of the work, the level and structure of the compensation and the fact that driving truck is not viewed as a profession.  The fact is that while there are millions of Americans and Canadians out of work, driving truck is not considered an option for most people.

At a recent Driving for Profit Seminar in Toronto, Lou Smyrlis, Editorial Director of Canadian Transportation & Logistics Magazine, led two trucking company investment advisors, Doug Nix, Vice Chairman of Corporate Finance Associates and Doug Davis, Independent Director, Pro-Trans Ventures Inc. through a discussion of how to buy and sell trucking companies in 2012.  Here is what they had to say.

From a buyer perspective, they encouraged companies to be proactive in seeking out prospective acquisition candidates.  Since so much about buying is timing, it always important to plant the seed and remain in contact.  While a trucking company’s leaders may not be ready to sell their enterprise in the second quarter of 2012, it is at least important as a purchaser to express your interest. One should also keep in mind that the purchase process itself can take six to nine months or more complete.

The buyer should carefully think through some key questions such as “why” make this purchase, what are the underlying business risks of a potential acquisition, do they have the investment advisor team in place to guide them through the process and do they have the “bandwidth” (management team) to manage the acquisition? In other words, can the company manage its current base of business while it is trying to assimilate new customers, new employees and possibly fit two cultures together?

The two advisors mentioned that they use a valuation multiple for an asset-based business of 3.75 X normalized EBITDA.  The word “normalized” is an important concept since this refers to what the earnings will look like when certain expenses or withdrawals that are taken out of the company by the current owners are removed from the income statement to better reflect what the business will look like on a going forward basis.

The purchaser must look at a number of variables in determining how to pay for the company.  The advisers related it to buying a home. The purchaser looks at what they can make in terms of a down payment and the level of mortgage they wish to carry.   Similarly, when buying a trucking company, one needs to consider the financial structure of their offer.  This involves an evaluation of cask payment, business loan and earn-out.  The latter is a common term that refers to principle of paying the seller part of the purchase price from monies earned by the business over a period of years.  If the sellers remain with the business after implementation and help maintain the income flow, they are rewarded with a business retention bonus for their efforts. 

Two experts in trucking company acquisitions predicted this week that we are in store for an upswing in industry consolidation in 2012.  This was one of the highlights of the Driving for Profit event that was held in Mississauga this past week.   Lou Smyrlis, Editorial Director of Canadian Transportation & Logistics interviewed two gentlemen who play significant roles in these types of activities, Doug Nix, Vice Chairman of Corporate Finance Associates and Doug Davis, Independent Director, Pro-Trans Ventures Inc.

In the initial stages of the interview, Lou asked these gentlemen about why we did not see more consolidation during the recent recession. The key takeaway from this discussion was that during this difficult period, trucking companies hunkered down into a “survival mode.”   The recession created devaluations of trucking company businesses.  Most truckers decided to tough it out until valuations improved.  Lenders, who saw trucking as a core industry, chose to support the industry until economic conditions improved.

The two investment advisors now believe that M & A activity will now increase.  They base this conclusion on the fact that after a 3 year hiatus, there is a pent-up demand.  There is a “ton of cash” waiting to be invested.  Balance sheets are healthy again.  During the recession, many trucking companies right-sized their businesses.  Investors will now see more efficient, stable businesses. 

Demographics will also play a part as many baby boomers who are seeking an exit strategy are three years older and their timetable for leaving the industry is now shorter.  We now have willing buyers, sellers and bankers.  While the two gentlemen do not predict a “feeding frenzy,” they do expect to see a doubling in the volume of trucking company acquisitions as compared to what we saw the last three years.

Lou then asked these advisors about the types of deals we are likely to see.  They expressed the view that there will likely be more “bolt-ons” where companies seek to expand a core business.  These types of deals allow companies to “improve overheads, bring margins into line” and “reduce dependence: on certain “key customers.”  When asked a question about whether we can expect to see a blockbuster deal like the Yellow-Roadway merger in the U.S., Doug Nix made the observation that the money would be there if the right plans with the right people are put in place.  However he opined that he does not think Canadians have the “chutzpah” to make a deal of this nature.

As the cost of diesel fuel hovers around $4.00 a gallon in the United States and $1.30 a liter in Canada, trucking companies (and politicians) are again focusing on strategies to control energy costs that have risen forty percent since 2010.  President Barack Obama firmly defended his record on oil drilling last week and ordered the government to fast-track an Oklahoma pipeline while accusing Congress of playing politics with a larger Canada-to-Gulf Coast project.  Alberta, home to the world’s third largest pool of oil reserves, is working to increase capacity to transport crude amid opposition from environmental groups as companies such as Exxon Mobil Corp. and Suncor invest about C$20 billion annually in the oil sands. 

In addition to increasing supply, trucking companies are instituting measures to ensure these energy supplies are utilized as efficiently as possible.  Three such strategies were highlighted in a recent paper prepared by Derek Singleton, ERP Analyst at Software Advice.  Here are some excerpts from Derek’s paper and from other industry sources.

Careful planning and the use of predictive technologies–such as distribution business software–can minimize the impact fuel costs have on the bottom line. Companies that manage a fleet can cope with rising fuel costs using three general strategies:

1. 1.Streamline fuel procurement;
2. 2.Improve operations and fleet management; and,
3. 3.Better plan delivery routes and shipment loads.

Managing fuel costs isn’t just about taking steps to control the costs. According to David Zahn, VP of Marketing at FuelQuest, significant savings can be realized simply by building predictability into fuel procurement budgets. Gas prices typically swing five cents per gallon, up or down, on any given day. When purchasing thousands of gallons of gas, buying at the wrong time can be devastating to a company’s bottom line.

Technology solutions like FuelQuest give companies that store gas a way to forecast demand, monitor on-hand fuel, and procure at the best market price. Automating the fuel procurement process, says Zahn, typically saves companies four to six cents per gallon.

Last weekend I was struck by an interview on leadership lessons in The New York Times.  It appeared in the “Corner Office” column of the Sunday Business section.  The interview was conducted with Tracy Matura, general manager of the Smart car division of Mercedes-Benz USA.  During the interview, Tracy was asked a question about what she asks prospective candidates whom she is seeking to hire.  Here is what she said.

“Tell me who your favorite boss was and why, and tell me who your least-favorite boss was and why.” Tracy commented that this gives you a sense of what leadership style works best for this individual.  “I would also then ask them about a time they took a risk and failed.  I have never hired people who have told me they’ve never failed.  You don’t learn if you don’t fail.” 

The interviewer then challenged her on the issue of whether anyone ever admits that they have never failed.  Tracy responded by saying that people might say, “You know, I don’t think I’ve ever really had a complete failure.  Really.  I don’t even ask the question in terms of just business.  Everybody has had some failure in their life.”

This led the interviewer to try to understand the underlying rationale for the question.  This was her response.  “Here’s what I want:  My leadership style is to be transparent and authentic, so if you’re going to tell me you’ve never failed, then it makes me wonder if you always hide your failures.  I don’t like that - - surprises are bad for everybody.  I can’t fix or try to fix something I don’t know about.  Some people have that fear factor if they admit to failure, as if they say to themselves, “If I say I failed, she’s going  to think I’m a loser and not hire me.  Quite the opposite.”

While Ms. Matura’s comments reflect what she is looking for in a prospective employee, the person being interviewed has an obligation to try to determine the management style of the prospective boss.  In order to make this assessment, the interviewee needs to ask a similar set of questions.  “Tell me about the employees you hire with whom you have had the most successful relationship and why, and tell me about the employees you hired that were the least successful and why.  How would you describe your leadership style?  Please share with me some of your teams’ successes and failures.  How do you describe your goal-setting process, how do you measure results, how do you communicate those results and what is the performance review process?  Also, please describe the work environment that you try to create.”

For the past several years I have been a participant in and fan of LinkedIn.  It is an amazing social media tool for business.  Recently I have joined and studied the discussions in a variety of LinkedIn freight transportation groups.  There are many of them available to transportation professionals.  Some deal with LTL freight, procurement, load postings, networking and recruitment, to name just a few. 

Since Best Practices in Surface Freight Management is a passion of mine and a focus of my business, I thought it would be valuable to create a separate group to exchange ideas on this important topic.  Effective today, I have launched this group on LinkedIn. 

The Mission of the Group

Freight Management Best Practices welcomes transportation professionals interested in sharing, developing and implementing innovative and cost effective Best Practices in Surface Freight Transportation.  We encourage members to discuss the challenges, opportunities and changes facing shippers and carriers in the freight transportation industry.  Our goal is facilitate the sharing of knowledge and create a dialogue between shippers, carriers and other industry professionals.   The intent is to identify and improve processes, to reduce inefficiencies in order for shippers to derive the best value from their transportation spend.

Topics for Discussion

CSA 2010 was created by the U.S. Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) to remove unsafe commercial drivers from the America's roads.  CSA, short for "Compliance, Safety and Accountability," uses a complex methodology to rate motor carriers on safety. It incorporates a "Safety Measurement System," or SMS, that assesses a trucker's on-road performance over the most recent two-year period and indicates whether the assessment should prompt the agency to dig deeper into the carrier's operational fitness. 

The SMS includes seven "Behavior Analysis and Safety Improvement Categories" known as "BASICs." Embedded in the seven categories are more than 640 infractions that a driver and vehicle can be cited for. The SMS database is populated by data generated from roadside inspections triggered by infractions such as speeding on an interstate or state highway. A speeding violation gives law enforcement "probable cause" to pull a truck over and conduct what is known as a walk-around inspection of the vehicle and driver. Any infractions that are then found will accumulate as points on a company's safety "scorecard," which is updated monthly. 

Fatigue Driving (hours of service), Vehicle Maintenance and Unsafe Driving are the three areas of most concern.  Should the point total exceed the FMCSA's threshold for safety compliance, government inspectors will conduct an in-house audit or intervention of the company's operations. From there, a determination will be made if the driver is fit to continue behind the wheel.  American, Canadian and Mexican carriers are all subject to inspection.  An estimated ratio of 1 in 5 carriers is at risk of an intervention.

The CSA program is expected to have multiple impacts on the freight industry.  While the system is imperfect and controversial, it is projected to move 10 percent of America’s 3.5 to 4.0 million drivers out of the industry, exacerbating the driver shortage that already exists.  It will likely have an impact on insurance costs and driver training costs.  Cost increases coupled with fewer drivers will serve to drive up freight rates that are already on the upswing due to the improving economy and carriers’ reluctance to make fleet additions.

The question for shippers and freight management companies is where do CSA scores fit in the selection and procurement of freight transportation services?   Concerns over legal liability seem to be playing a role in carrier choice.  A late 2011 shipper survey conducted by Morgan Stanley & Co. found that 55 percent of those polled were afraid to use a carrier if even one of its seven BASIC scores came in above the CSA threshold. If those shipper attitudes become more entrenched, carriers with a positive safety history but a poor CSA record may be “blackballed” and pushed out of business, according to the program's critics. 

Much has been said and written about the Great Recession and its impact on the freight market.  The question on the minds of many shippers, carriers and consultants as we approach the end of quarter 1, 2012 is what is the current state of the freight recovery and where are freight rates going?  When one tries to assess the state of demand for freight services and the level of capacity, how do these compare to pre-recession levels?

This week considerable light was shed on this topic during a webinar hosted by the Journal of Commerce.  The webinar focused on the current and projected state of supply and demand in order to provide some insight into projected changes in freight rates over the next 6 to 18 months.  Here are some of the highlights.

John G. Larkin, Managing Director, Transportation & Logistics Equity Research at Stifel Nicolaus made the case that retail sales (excluding food) in America, despite lingering high unemployment have returned to pre-recession levels.  The ISM Purchasing Managers’ Index has been above 50 since January 2010, signaling a growing economy.  The Weekly Market Demand Index (MDI), a measure of relative truckload demand, has been In favour of the trucking industry since January 2011.

Large fleets (with greater than $30 million in revenue) are now at 9.5% below their capacity at the peak (Dec.06) while smaller fleets are 17.9% below their peak (in December 2003).  Drawing on other sources, Mr. Larkin highlighted that truck fleet removals are forecast to remain at historically low levels.  Since peaking in May 2007, the number of LTL power units has declined 19.3% as of December 2011.  October and November 2011 saw slight year-over-year increases in the tractor fleet, which had last occurred in March 2008, but December 2011 reverted back to a slight year-over-year decline.

Drawing on data supplied by the American Trucking Associations, Mr. Larkin then showed that after the huge disconnect in 08 and 09, with truckload capacity tightening, truckload demand and supply have come back into line. Surprisingly, Mr. Larkin’s data also showed that LTL demand is now exceeding supply. 

Over the past week, there has been a barrage of comments posted in one of the Procurement groups in LinkedIn on the topic of why so many of these activities fail.  For those of you interested in this topic, please sign in to the group or read the following blog prepared by Tony Colwell, Executive Interim Manager and Director at Acuity (Consultants) Ltd.   (http://acuityconsultants.com/wp/2012/01/avoiding-the-pitfalls-of-centralised-procurement-18-reasons-why-procurement-cost-saving-initiatives-fail-to-deliver-to-the-bottom-line/). 

In Tony’s blog, he tabulates the results of 311 comments that he received.  For those of you who take the time to read the postings in the LinkedIn group and Tony’s summary, you will see a fair bit of commonality.  For the benefit of the readers of this blog, I will take the ten most frequently mentioned reasons for failure and elaborate on them based on years of experience in dealing with shippers on freight RFP projects.

1. Cost Inaccuracies/True Costs not understood

My company has confronted this problem repeatedly over the past eight years.  In many shipper organizations, the freight transportation data is not clean and well organized.  The data may or may not include fuel surcharges and other surcharges.  In some cases, it is not possible to discern whether the freight costs include or exclude fuel.  A lack of standardization of fuel surcharge formulas may further impede the work of calculating an accurate base cost estimate and detailed lane data.

2. Poor Planning and Leadership/Unclear Objectives

I have written about intermodal transportation several times over the years that I have been preparing this blog.  I became a big fan of intermodalism during the 90’s when I ran Canada’s largest IMC (Intermodal Marketing Company).  Each time I wrote a blog on this topic, I felt that the service was on the brink of making a major breakthrough in customer acceptance and market penetration.  While intermodal activity has shown steady growth over the past 10 to 15 years, this mode of transport is still viewed as a niche market by some folks or a slow and unreliable mode by others.    

These attitudes and perceptions appear to be changing.   Mark Yeager, Vice Chairman, President and CEO of the Hub Group, one of North America’s largest intermodal operators, has labeled 2012 a “transformational” year for Intermodal transportation.    A year is a short period of time.  My own belief is that by the end of the decade, intermodal service will reach significantly higher levels of market acceptance.  Here’s why.

Rails have made and are continuing to make major Investments in Infrastructure

The six class 1 railways in North America have all made significant investments in their intermodal operations.  As examples, Norfolk Southern’s 1400 mile Crescent Corridor and its Heartland Corridor and CSX’s National Gateway (that is one third complete and will be fully operational in 2015) are just three examples of the major investments being made by two railways to allow taller trains carrying more cargo to move through the east coast of America.  The rails are better equipped to handle more intermodal traffic than ever before.

The Service in better

I have been writing a blog on the transportation industry for five years.  During this period I have received hundreds of postings and e mails from readers.  Every now and then I receive an e mail that stands out.  This week I received a thoughtful and interesting e mail and article from a truck driver, David Robson.  In the article, he shares his thoughts on what trucking companies can do to improve driver retention and increase trucking company profits.  With permission, here is an edited version of the article.

 The Future of the Professional Driver

“I was looking up the top 50 trucking companies and reviewed a few of the well-known companies CSA scores from the FMCSA website.  I was surprised and disappointed with what I saw.  Many of these carriers advertise on the backs of their trailers, “We hire only safe and professional drivers.”   If you saw their CSA scores I would think that the owners would be embarrassed to display those signs.  Perhaps the owners are not aware of their scores.

The first thing I noticed was that many were near the 60% intervention score. The other common factor involved “Subject to Placardable HM Threshold.“

I found some violations that were commonly high among most of the carriers.

Over the past two months Stephen Harper has presented a clear and compelling vision of where he wishes to take Canada during his tenure as Prime Minister.  First there was the border Security and Trade Agreement with the United States that he and President Obama announced to the world in December.  He followed this announcement with an important speech this week in Davos, Switzerland at the World Economic Forum in which he outlined his plans to expand trade with nations around the world.

It is important to put these initiatives in context.  Canada has the 10^th largest economy in the world.  Thirty percent of the country’s GDP comes from exports.   The United States is Canada’s largest trading partner receiving 73 percent of Canada’s exports and 63 percent of its imports.  Canada receives 23 percent of U.S. exports and 17 percent of its exports.  Canada is the number one export market for 35 of the 50 U.S. states.  Trade with Canada is more than twice the volume of all U.S. trade with the nations in the European Union.  While the north/south flow of goods has changed over the years due to the rise in the value of the Canadian dollar against the U.S. dollar, this is still a very large and important trading relationship for both countries.   

The Security and Trade agreement announced in December will facilitate freight flows by reducing the number of inspections and integrating the trusted trade programs of the two countries.  The rhetoric and political posturing over the past few weeks concerning the Keystone Pipeline project has overshadowed the size and scope of our trading relationship with the United States and the initiatives being taken to take this relationship to a new level.  “We will also continue working with the Obama administration to implement our joint ‘Beyond the Border’ initiative, our plan to strength and deepen our economic and security links to our most important partner,” stated Prime Minister Harper in Davos.

This week the Prime Minster made it very clear Canada will not put “all of its eggs in one basket.”  The nature of the Canadian economy, the need for Canada to market its energy, wheat, potash, pulp and paper and manufactured goods requires the country to sell and distribute these goods to other markets.  “However, at the same time, we will make it a national priority to ensure we have the capacity to export our energy products beyond the United States, and specifically to Asia.  In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays - that is, delay merely for the sake of delay,” commented Prime Minister Harper.

“We will continue to advance our trade linkages.  We will pass agreements signed, particularly in our own hemisphere, and we will work to conclude major deals beyond it.  We expect to complete negotiations on a Canada-EU free trade agreement this year.  We will work to complete negotiations on a free-trade agreement with India in 2013.  And we will begin entry talks with the Trans-Pacific Partnership, while also pursuing other avenues to advance our trade with Asia.”