June 1, 2007

Shippers may benefit from STB ruling

By DC Velocity Staff

It appears that the era of motor carrier collective ratemaking is over. After nearly 10 years of deliberation, the Surface Transportation Board (STB) last month eliminated antitrust immunity for motor carrier bureaus engaged in col lective ratemaking and freight classification. "This will help the shipping community because each individual carrier will be fighting for its own traffic, rather than having that [rate] protection," says transportation consultant Cliff Lynch, principal of Clifford F. Lynch & Associates. "I think it's a good thing. Things will certainly get a little more interesting in the marketplace."

"We have felt for many years that collective ratemaking by carriers is anticompetitive and does not benefit shippers," says Gail Rutkowsi, director of operations at AIMS Logistics and president of the National Shippers Strategic Transportation Council (NASSTRAC).

The ruling takes effect after a 120-day waiting period, which means price competition may begin to heat up toward the end of the summer. However, consultants agree that the ruling will be appealed. At the least, an extension may be sought to allow industry to better prepare for the massive changes about to take place. Once implemented, the decision could save shippers anywhere from 5 to 10 percent on truck rates.

John Cutler, general counsel for NASSTRAC, says his group will oppose an extension of the 120-day waiting period, as well as an appeal. Cutler adds that NASSTRAC will seek a price freeze if an extension is granted to keep bureaus from trying to put through one last general rate increase.

But at least one observer worries that the 120-day window might be too short. Longtime industry consultant Hank Mullen of Mullen Associates says the tight timeframe could create havoc in the marketplace as shippers and truckers scramble to adjust to the phase-out of a practice that has been in place for 70 years. "I am of the opinion that the system needs to change, but not at the cost and confusion this will create," says Mullen. "I'd say it is easily another year before this settles down, and even that would be kind of fast." He adds that the 37-page rulemaking alone could take some companies weeks to digest.

Though the STB decision is likely to have a huge impact on its operations, SMC3 has yet to comment on the ruling beyond acknowledging its existence. The Peachtree City, Ga.-based bureau publishes CzarLite, the de facto standard for the base tariffs used by many less-than-truckload carriers in their rate negotiations. "SMC3 will be evaluating the STB's decision in detail in order to fully address both the challenges and opportunities it presents us and our customers," says Danny Slaton, who is senior vice president, business development for SMC3. "We will provide regular updates to our customer segments regarding our business responses to the decision."

While the STB's decision means that carriers will be required to develop rates individually—rather than collectively—in the future, they will still be allowed to use the National Motor Freight Classification for rating shipments, as long as all parties to the negotiation agree. The classification, which rates commodities on density, handling difficulty, and other factors, is often used to establish pricing for particular products. Changes in class ratings, however, will now be subject to negotiation, instead of being imposed by carriers acting collectively.

"This is an issue we've been working on for more than 10 years," says Cutler. "Motor carrier collective ratemaking is a holdover from the cartel era of trucking industry pricing and is inconsistent with the competitive goals of deregulation. Reforms the STB adopted in the last round of proceedings did not solve the problem, so NASSTRAC welcomes the new decision by the Surface Transportation Board. Shippers and carriers benefit from competition. That is the main lesson of deregulation."

planning for automation
It might seem intuitive: better workforce planning and scheduling will lead to greater productivity in the distribution center. Unfortunately, knowing and doing are not always the same thing. A recent study of workforce planning and scheduling practices conducted by the University of Wisconsin at Madison's E-Business Consortium reveals that in many DCs, there's a big gap between the real and the ideal.

The study was designed to identify current practices for workforce planning and scheduling, and to determine whether greater automation might yield benefits. What researchers found was that manual processes continue to dominate both planning and scheduling practices. Fifty-nine percent of the respondents reported using manual practices for planning, while a mere 3 percent said their processes were fully automated. An even greater percentage—67 percent—said they used manual processes for scheduling labor, while just 2 percent said they had automated their processes.

A slight majority of the participants said they were dissatisfied with their companies' current planning processes. A greater percentage said they believed that automating those processes would pay off in greater workforce utilization. And most believed the payoff could be significant; two-thirds of the survey participants estimated that automating their planning and scheduling processes would improve workforce utilization by anywhere from 6 to 20 percent.

Nonetheless, the survey respondents said their biggest frustration wasn't their own scheduling woes but the lack of visibility into future demand and the inaccuracy of forecasts they do receive. Survey respondents believe automation would ease the process of converting demand forecasts into accurate workforce requirements and allow them to simulate staffing requirements based on the forecast information.

"According to the overwhelming majority of survey respondents, the primary benefit of automated workforce planning capabilities would be more efficient and effective labor utilization, as well as the closely related benefits of reduced unit labor costs and improved customer satisfaction," the report says.

Most of the 196 respondents to the survey, which was sponsored by supply chain software and services provider RedPrairie, were managers or directors within the distribution, logistics, or operations functions of various-sized companies in 11 industry segments. The full study, "Workforce Planning and Scheduling in Warehouses and Distribution Centers," can be found at <www.dcvelocity.com/workforcestudy.

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