Archive for June, 2010

Welcome “Back to the Future” – Capacity Constraints Causing Load Coverage Problems

Thursday, June 17th, 2010

The exiting of drivers caused by the economic downturn is creating a driver shortage. Add the carrier cost escalations associated with compliance with the new federal regulations for tractors, trailers and communications and you have a recipe for reduced capacity and higher prices.

We are now seeing return of the “suppliers” market experienced in 2004 when a perfect storm caused by the then “New Hours of Service’ regulations, and rail and intermodal capacity reductions by the railroads resulted in skyrocketing demand for trucks and increased fright cost.

If you haven’t experienced any problems as of yet you will. How can you prepare for this new reduction in trucking capacity and minimize the impact of fright rate increases? You need to be proactive.

Planning for capacity constraints?

Your first step is to realize that you are in a competition for carrier resources with other companies operating in your markets. You therefore need to make your freight more attractive to carriers. Now is the time to identify and make changes in those areas that make your freight more desirable and most attractive to carriers.  Here are suggested areas of focus:

  • Pay on time. The fastest way to lose carrier support is to be a slow pay. If you have internal freight payment issues, work to resolve them or outsource freight pay.
  • Establish an effective freight bill exception resolution process with your carriers so that issues can be quickly addressed and not end up as multiple balance dues. Multiple handling of freight bills drives up your costs and those of the carrier.
  • Provide a minimum of two days lead time for pickups giving your carrier ample time to plan your freight into their schedule.
  • Be consistent and predictable. Last minute change orders and short lead time orders are the most difficult for a carrier to respond to and least likely to accept.
  • Don’t be known as “that shipper who routinely cancels and re-books orders”.
  • Loosen up pickup and delivery windows. In a tight freight market assigning specific pickup times with 30 minutes or less leeway makes your freight more difficult to manage and less attractive. Carriers need flexibility to maximize the use of resources and enable them to serve as many shippers as possible.
  • Don’t load trailers early in the day for next day deliveries of less than 250 miles from your origin. Doing so increases the trailer usage on the load and may limit the carrier’s ability to use the trailer on other more local delivery.
  •  If possible allow carriers to drop trailers for loading at the carrier’s convenience for longer haul loads. This will enable the carrier to use a local driver to load and spot the trailer for later pickup by a long haul or system driver.
  • Don’t attempt to capture capacity by loading trailers in advance and delaying deliveries. Tying up carrier trailers for protracted periods of time even when you pay trailer spotting charges still limits the revenue opportunity for the carrier and they may not want your business.  

Manage freight cost increases on a lane by lane basis

  • Before you agree to any price increases understand how your current freight rates stack up in the market. Don’t merely accept an across the board increase. Benchmark your freight rates to identify lanes that are in jeopardy for rate increases. Chances are not all of your rates will be subject to an increase. Use an outside company with significant market knowledge to assist you in determining how your rates compare to other shippers.  It is well worth the nominal cost you will pay for the service.
  • Get to know your core carrier lane densities so you can match your freight to their lanes with the most opportunities for reload and/or round trip potential. These lanes generally produce the lowest costs for the carrier and the most favorable rates for the shipper.

The capacity pendulum has already passed its apex….it’s time to be proactive with your carriers.

Logistics Outsourcing: Does it make sense for everyone?

Wednesday, June 2nd, 2010

Each company must look to its strengths to answer this question for itself. But the answer is likely to be yes ….to some extent.

Two questions help to begin to frame the answer are: 1) what expertise and capabilities should we have in-house based on our size and the criticality for each logistics function? And 2) what really are our strengths today for each function and each mode and are any gaps best filled by Outsourcing?

Smaller companies with less than 5-10,000 shipments per year will often Outsource the full logistics function to a 3rd party provider (3PL). It simply is not cost efficient to have experts across all functions like procurement, execution, payment, regulatory compliance, etc.  and across all modes from truck to rail to ocean. For medium size, and even large shippers the answer often comes down to looking at its operation mode-by-mode. Some very large domestic shippers who only do several thousand international shipments per year recognize that the complexities of those shipments require an understanding of markets, processes, regulations, etc. that is better handled by experts who do that for many shippers. Companies that may have large packaged truck operations but smaller bulk truck needs, or vice versa, will often carve out that mode for Outsource experts to manage. The same is true across all truck, rail, and intermodal operations.

An especially useful area of Outsourcing for companies of all sizes can be Freight Procurement.  Outsource providers bring: 1) purchasing power, 2) market expertise, and 3) systems and tools that a single shipper cannot hope to match. 3PLs have staff that is constantly in the market both for themselves and for their Freight Procurement customers. This allows them to see changing trends in price and capacity across regions. This valuable knowledge is coupled with the use of automated tools that create competition for the shipper and often allow carriers to see how their Bids are stacking up. This ensures the best matching of carrier capacities/strategies with the needs/strategies of the shippers.  These Outsource Procurement engagements often start with a Benchmarking exercise that highlights the potential of having an automated bid done in conjunction with the Outsource partner.

The logistics process with the most hassles, Freight Audit & Payment, is also often Outsourced to save internal staff resources. Especially coupled with a Transportation Management System the process can be automated and exceptions, the bane of the process, significantly reduced.

For processes/functions/expertise that makes sense to keep in-house for medium and especially large shippers there is still an Outsource decision to make…..where do we get the support systems needed by our staff for procurement, for shipment execution (Transportation Management Systems – TMS), for global trade management, etc.   Some 3PLs, such as CLX, use these systems as well as sell and implement them with larger shippers. The very good news here is that the seller/implementer is fully vested in ensuring a good product that is well maintained.

As with many questions in Logistics, the answer to “Should we Outsource?”  comes down to “it depends”.  But I think you will find that in most cases the decision will not be to Outsource or not, but rather, what functions, processes, and modes does it make sense to Outsource.