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.

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 3^rd 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 ChemLogix, 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.

The following are major benefits that ISO tank containers offer over OTR tank trucks in the transport of freight: 

1. 1. Greener.  The International Tank Container Organisation reported that intermodal tank containers leave a carbon footprint that is almost 50 per cent less than that of an equivalent drummed shipment on certain long-haul routes.  Using intermodal transportation also saves fuel and reduces CO2 emissions by up to 70%, especially on hauls over 150 miles.  This may be a major factor to consider as chemical shippers must find ways to reduce carbon footprint to meet future government mandates. 
2. 2. Safer. On long hauls, OTR tank trucks often must travel through bad weather, causing unsafe driving conditions that lead to accidents and delays.  Vehicles often park at unsecured rest stops and have the potential for mechanical breakdowns. Shipping freight via intermodal using ISO tank containers eliminates these issues.   As containers are marked with a unique BIC code, they can be easily ID’d and tracked.  And even heavy ISO tank containers are unlikely to cause mechanical failure on trains and ships and are safer when in transit.   
3. 3. Cheaper. Using ISO tank containers via intermodal as a mode of transportation instead of OTR can also help save 20 – 30% in transportation costs, depending on distance and volume of freight.   
4. 4. Easy Storage.  While ISO tank containers can easily be stored at the consignee, OTR tank trucks often must be returned to their point of origin, which for long hauls may be thousands of miles away. Delivering an ISO tank via intermodal to a consignee is generally a local delivery. No driver layovers!    
5. 5. Greater Flexibility. If the customer decides at the last minute that they want to delay a freight delivery for a couple of days, tanks can be left at a local storage yard. If the load came via OTR truck, the customer would have to take delivery on the scheduled date. Also, as previously noted, one container can transport the same freight by ship, truck and train as part of a single journey without unloading.  

Market indicators predict that ocean freight rates will continue to rise in 2010.  While capacity is expected to increase slightly, carriers will add capacity only if they see sustained market growth.  Equipment shortages will also challenge shippers, especially those located in Midland America.  That’s because carriers continue to find it more economical to return empty containers to Asia and pick up new cargo rather than allowing those containers to move inland.

In addition to higher rates, carrier on-time performance created problems for shippers in 2009 with on-time delivery reported at a dismal 55%!  Most delays can be explained by service changes and slow steaming as carriers looked to conserve fuel. Continued poor on-time carrier performance may lead to increased inventory or stock outs as variability in delivery increases over the year.

So, for 2010, how will shippers react?  Will they sign long-term contracts or just extend current contracts until the market stabilizes?  Will carriers, again, continue to increase rates or will competitive forces stabilize rates?  My bet is rates will rise and 2010 will again be a year of challenge.

1. Ongoing cost reduction/containment strategies

Going beyond the terms of a contract to manage specific freight activities on a monthly or cost-per-transaction basis, 3PLs should proactively present cost management ideas as part of their services.  After becoming familiar with customer operations, 3PLs should be able to identify areas in the supply chain where costs can be contained.  Ideas can range from optimizing weight per shipment through load consolidation, spot bidding on more cost effective carrier lanes or even initiating a freight reduction project to reduce inbound transportation costs.

2.Access to best-in-class transportation management technology

Incorporating the latest transportation management technology to optimize supply chain operations was typically not an option for small- to mid-size shippers who could not afford the upfront investment or ongoing maintenance.  3PLs now offer best-in-class transportation management technology that does not require large investments in hardware, software or even additional personnel.  On demand transportation management systems can be connected to customers’ existing ERP systems in as little as 6 months.  Customers should seek additional capabilities such as online RFQ tools and global order tracking.  Most recently, ChemLogix began offering its customers an iPhone® application as part of its TMS capabilities that gives users mobile access to shipment data on iPhones.

3. Ensure Orderly Review Process

Rather than wait for problems to arise, a 3PL should lead a periodic review of supply chain processes with appropriate personnel to discuss new transportation solutions, specific cost reduction ideas, service levels, and any issues that the client may have with current operations. By reviewing data pertinent to different supply chain elements such as on-time deliveries, costs, customer service issues, etc., the 3PL can discuss which objectives have been met, if there are any problem areas and set new goals for the next operating period. 

4. On-line Visibility to Freight Activity

In addition to automating many processes, a 3PL should give customers online, real-time visibility to supply chain operations including freight, invoices, routing guides, carrier service records and more. With visibility to in-transit data, shippers can determine at any point during the supply chain process if shipments will be delivered on time and when to notify plants and customers of impending deliveries and shipments.  Should shipments be late, automatic email alerts can sent to customer service reps so that they can proactively make arrangements with their own customers.

5. Support in Boardroom Discusses

Getting the funds from executives to implement and/or expand transportation services and systems sometimes takes the assistance of 3PLs who can provide detailed explanations of the long-term benefits of specific supply chain strategies.  Experienced in providing transportation solutions to customers in the same industry but with varying scenarios, 3PLs can readily provide informed answers to the questions posed by executives and give examples of the successes and pitfalls associated with certain actions.  3PLs, essentially, become a part of the logistics team when presenting ideas and updates to the board room.

After the deregulation of the transportation industry in 1980, using bank freight payment services  to meet tight deadlines was no longer necessary.   Services also became obsolete as web-based freight audit and payment services became available to chemical shippers.  However, many companies continue to use bank freight payment services out of habit, not for valid economic reasons.

The Banking Freight Payment Process  

The bank’s approach to handling and processing freight payment has not changed in over half a century.  Formulas remain:  “If A equals B, pay.  If not, reject and return back to the company.”   Many banks have even shamelessly bullied carriers to accept a discounted value for receiving payments on time. 

In a banking model, all payments are the same.  For example, cable, telephone and credit card payments are all handled much the same way.  Processing freight invoices for chemicals, however, requires a higher degree of specialization.    Sometimes, it is not just about carrier rates but whether a carrier is qualified to handle chemicals.

3PLs, such as ChemLogix, hold industry certifications that give us the specialized knowledge to understand that when auditing a freight bill, we must not only verify rates but also if the material is being handled according to manufacturer’s specifications and if the carrier has been certified to transport the material.

3PLs Offer Paperless Processing

Supported by world class transportation management systems (TMS), 3PLs also can offer best-in-class freight audit and payment services in a truly paperless environment where documents and data can be transmitted to carriers in a variety of formats (EDI, XML, etc.).  Unlike banks where general ledger code information is limited, TMS capabilities give 3PLs the technology to work in an automated, always current environment that provides customers and carriers with relevant information on a real-time basis from many devices including mobile device applications such as Iphones®.  Banks typically offer limited access to information.  

Companies that use banks to handle their freight audit and payment are finding that they are still heavily involved in the process.   And in most cases, shippers are not achieving expected savings. As banks use similar tactics when processing bills for different industries, they do not have industry data to handle exceptions on their own.  As a result, exception rates run as high as 20 percent, with chemical shippers having to get involved with resolving most of these exceptions while paying for additional handling fees by banks. 

3PLs, like ChemLogix, have access to advanced, multi-relational databases that include information such as fuel surcharge tables, freight rates  and accessorial costs that help resolve many exceptions without going to the customer.   ChemLogix’ customers experience less than five percent exceptions, with most handled by our experienced logistics team without getting the customer involved with problem resolution.  For those times when exceptions cannot be readily resolved, a collaborative exception resolution capability via network interface affords real-time electronic communications to customers instead of faxes and emails.

Taking the time to compare bank vs. 3PL services related to freight audit and payment can save a chemical shipper substantial processing time and money while improving relationships with carriers.  Even if your current process seems to be working well, it is worth taking the time to evaluate the benefits of new processing options for freight audit and payment.

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I was associated with a company that imports products from Europe. Each day, they receive a couple of containers from Europe and over the years have seen the cost of transporting each container from the port to the warehouse rise from $350 to $650. When you factor the incremental cost to the unit cost of the product it does seems very minuscule but in total their cost has gone up by $500K per year. This increase is camouflage under variable cost of goods.  This company has laid off many employees due to slowdown in the business and price pressure from competitors but is not willing to take a look at the transportation cost because in general, it works. Again if ain’t broke, don’t fix it.

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I have a very good, financially astute friend, who in conversation told me that his family consistently buys cars from a particular dealer and how they’ve always managed to pay list price without any additional cost… I did say list price not invoice price. As it turns out, the dealership had been providing the cars to my friend at a price that had enabled them to make a significant profit. The same is applicable in the transportation industry where the carrier will charge the list price in an effort to maximize their profitability. Companies like ChemLogix, who specialize in negotiating the best rate for their clients and their freight payment services will audit and make sure an optimal rate are applied. Conversely, many freight payment companies, especially the big ones, simply pay the carrier their asking rate, and in many instances will end up paying list price. While these companies may be good at getting the best utility or cable rate, when it comes to a specialized field of chemical transportation, a company the only focuses on the chemical industry can be much more adept at obtaining and enforcing the best rates overall.

As my mother used to say “A penny saved is a penny earned”; savings from your transportation cost does go to your bottom line. Companies should take a look at their freight costs, including freight payment services, make sure it is good fit and stop paying list price like my friend. ChemLogix will make the process painless and stress free as possible.

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, just take a look, a check up every now and then is a recipe for a better health. We do it in our personal life, do it for your company.

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Have transportation freight rates bottomed out yet? This has been one of the two most frequently asked client questions this summer – along with “is it too late to bid my freight out to take advantage of recent market conditions”.

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Although no one has a crystal ball to definitively answer the first question, ChemLogix’s market data since May 09 implies the market has probably bottomed out by late summer.  The second question can be answered with a simple answer – yes.  The time is still ripe to bid freight rates today but…don’t wait too long or you will miss this year’s golden opportunity to generate freight rate savings.

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ChemLogix has conducted numerous freight benchmark Cyclops hd studies and bids this summer. Our studies have shown an average freight savings opportunity of between 10-25% of combined line haul and fuel surcharge costs.  Clients with very well managed freight costs have achieve freight savings opportunities of less than 6%.  Savings opportunities for these clients tend to be surgical, lane-level adjustments to only a few lanes.  The majority of our rate studies this year have found savings opportunities in excess of 10% which justified modal specific freight bids.

With that stated, I will also say the results of several bids conducted by ChemLogix in the latter portions of this summer have shown a transition in rates offered by carriers today.  Although significant savings were achieved through these bids, we saw either a slowdown in rate decreases or a stabilization of rates on similar lanes between bids. This trend, combined with other market indicators, such as, improving client load counts, increasing restrictions in getting carrier capacity in many markets, and hearing weekly that carrier business has started to boom over the over the last few months, all indicate conditions appear to be reversing themselves by summer’s end.

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War psp Femme Fatale divx ChemLogix still feels that current market conditions can and will permit great savings opportunities for those companies who take advantage of conditions now!  However, these conditions probably will not exist in three months.   We feel the market will begin to transition to higher rates at the end of the 4QTR09 as the national and world economies begin to recover.

If you think your company’s rates are high today then consider bidding your freight immediately.  If you are not sure how your freight rates fair against market conditions today, then have your rates benchmarked first and tie any bid activity to some savings trigger.  As a rule, ChemLogix feels savings opportunities of 5% or more should trigger a bid activity.  Companies with estimated savings of less than 5% should secure existing rates with existing core carriers for at least one year and go after identified savings opportunities using surgical, rate adjustments on a lane-by- lane basis only.  Few if any carriers will agree to more than a one-year rate contract today.

As trade collapsed earlier this year, companies accelerated the depletion of excessive inventories adjusting their outlook to one of  a sustained business downturn. Once inventories were stabilized at new lower levels, market analysts predicted that some trade recovery would likely follow.  So lies the question:  “Is this recent positive trend just a spike or does it reflect a real turning point, with continued growth to follow?”

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This is not the first time (it’s just received more attention because of the magnitude of this economic crisis) that chemical manufacturers and supply chain managers have been confronted with the inventory issues: when to replenish and to what level. It is a question not easily answered.

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Impact of the Global Supply Chain on Inventory

The global supply chain is inherently a process of many handoffs to a variety of service providers who must expertly and timely execute their functional responsibilities to i nsure the successful coordination of an international shipment. Assuming no major bottlenecks occur during the management of these handoffs, the timeline from order shipment to customer delivery of chemical products could take weeks, unlike a road or rail delivery that can be fulfilled in a matter of hours or days. The longer delivery time span for an international shipment naturally results in an increase of  inventory in transit and greater working capital exposure.

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While logistic managers may not be able to accurately predict the ebbs and flow of their global trade to determine future inventory levels, specific transportation management strategies can help minimize and/or control inventory build as global supply chains get longer and more complex.

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Web-based transportation management systems, for example, offer a degree of control over supply chain operations that can result in more accurately predicting restocking points and managing inventory levels.  By providing real-time visibility of supply chain activities involving customs brokers, freight forwarders, ocean carriers and logistics service providers, On-Demand Global Transportation Management Systems

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(GTMS) help logistic managers to monitor unscheduled delays that inevitably occur in the long chain of events. Through optimized event management, key logistics personnel are automatically alerted to shipment delays along the extended supply chain, enabling corrective actions to occur sooner to reduce the length of delays and to keep the chain of events on schedule.

Using the tools offered by an On-Demand Global TMS, international managers can proactively optimize operations to:

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• Reduce cycle times
• Eliminate excess inventory build
• Reduce supply variability and safety stock
• Minimize expedited shipments
• Reduce stock-outs

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As On-Demand Global TMS capabilities expand to support international (import/export) operations, chemical companies have now begun to automate their often manual international supply chain processes to include: freight tendering, compliance, and other logistic processes.  Through better event management and online visibility into logistic operations, businesses can more consistently balance inventories, whether the world economy is trending up, contracting or remaining stable.

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• That guy who is invisible to the key decision makers.
• That guy who can’t solve the nasty freight accrual problems.
• That guy who never brings a new idea to the table.
• That guy who doesn’t have shipment and order visibility.
• That guy who says “we tried that before and it didn’t work”.
• That guy who has a ton of computer reports but no actionable “information”.

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 If you’re not “that guy” with any of these characteristics, there a strong probability you’re making a real contribution and being recognized for it. But if you’re wearing some of these hats, it’s time to think transformation and act on it.

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