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Home » when the going gets tough, will your freight keep going?
enroute

when the going gets tough, will your freight keep going?

January 1, 2006
Peter Bradley
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To understand the depth of the current trucking shortage, you need look no further than Mick Barr. Over the past two years, Barr has watched while the once routine task of hiring a trucker to haul a load has deteriorated into a distinctly dicey proposition. These days, he says, when his department receives an urgent request to whisk a load of diapers, dog food or razors out to stores for a promotional event, he can't always assure the caller that he'll be able to find a truck.

That may seem unremarkable until you consider that Barr works for Procter & Gamble, the consumer products titan whose logistics budget runs into the billions of dollars. Like his counterparts at thousands of small and medium-sized companies across North America, Barr has run smack up against what's becoming an epic trucking capacity crunch. Booming business and a steady influx of imports have sent demand for trucks into high gear. But decades of industry consolidation and a chronic shortage of drivers have left freight haulers strapped for capacity.

That crunch won't be easing any time soon. The nation's truckers—burned in the past by overcapacity and low returns—will be cautious about investing in equipment. They're still reeling from an unprecedented confluence of cost pressures—skyrocketing fuel and insurance costs, soaring equipment prices, onerous federal driver regulations and escalating shipper demands for high-tech tracking/tracing tools. But more to the point, truckers are enjoying solid profitability for the first time in years. In fact, profits have reached all-time highs for the market leaders in the past year—giving truckers little incentive to do anything that might upset that balance. "I don't think we're going to see introduction of incremental capacity, particularly on the truckload side," says Wayne Bourne, who retired last year from Best Buy to start his own consulting firm, Bourne Management Group. (He is also a member of the DC VELOCITY editorial advisory board.) "That would only spawn rate competition."

All that is to say that although the capacity crunch may appear to be easing—the peak shipping season just completed reportedly went more smoothly than in 2004—there's no going back to the old days. Trucking and shipping executives alike believe that the business has changed permanently. The days of plentiful trucks and 70-percent discounts, it seems, are gone forever.

No way out
Shippers are scrambling to stay ahead of the problem, but it's going to be tough. As Katy Keane, vice president of transportation services for Big Lots Stores, notes, the old rules no longer apply. For example, it used to be enough to book your transportation early. But that's no longer foolproof, she says. "Loads we had covered or secured and felt good about were being turned back the day before they were supposed to be picked up." She believes her carriers held off on notifying her about the missed pickups because they were still searching for drivers or equipment at the 11th hour.

In the past, a shipper who couldn't find a truck had another alternative—he or she could simply move the shipment by rail. But that's no longer a good option. The situation was even worse with intermodal, Keane says. Frustrated in her attempts to find reliable truckload transport, she tried shifting some freight to intermodal. But a shortage of rail containers that led to even longer transit times and missed vendor pickups convinced her to go back to trucks.

It doesn't help that perennial port congestion issues, especially on the West Coast, have spilled over onto the highways, exacerbating shippers' problems. Mark Maleski, domestic carrier relations manager at JCP Logistics LP, the distribution operation for J.C. Penney, says for importers, there's no way out. "Every year, we think we have it figured out," he says. "We meet with the carriers; we shift some cargo to the Northwest—only to find that we just moved the problem. Capacity constraints are just as severe."

Changes in attitudes
Just as truckers learned how to restructure their operations to accommodate shippers over the years, shippers are now making sometimes painful adjustments of their own. The results of a survey conducted last year by DC VELOCITY and the Warehousing Education and Research Council provided ample evidence of that. The responses indicated that shippers had done everything from paying deadhead miles during peak periods to revamping their distribution networks in hopes of minimizing the impact on their operations, says Clifford Lynch, principal of C.F. Lynch and Associates and a DC VELOCITY columnist, who analyzed the research.

Lynch was not surprised to learn that shippers were revisiting distribution strategies in hopes of minimizing their dependence on truckers. "As freight rates go up, it no longer makes as much sense to hold goods back at the ports," he says. "If you hold goods back toward the source, you can fan them out, but with rates up, it makes sense to go as far as you can by truckload or, ideally, by intermodal and travel as little as possible by LTL. That's Transportation 101."

Lynch, who is based in Memphis, notes that southwestern Tennessee has drawn a lot of interest from distribution executives. Indianapolis and St. Louis are also getting attention, he adds. "People are poking around for locations in the central United States," he says. At the same time, they're expanding existing facilities and adding satellite sites that allow them to stockpile inventories as a hedge against transportation problems.

However, Lynch is not ready to say that the nation's businesses are shifting away from centralized distribution and toward regional models. "I would have thought we would have gone toward regional, but it doesn't seem to be the case," he says. He points to Hershey's new one-million-square-foot DC in the St. Louis area and Wal-Mart's new four-million-square-foot facility near Houston as cases in point. "Companies are not bashful about going to big locations," he observes.

For shippers who want to reconfigure their DC networks but can't afford a big investment in real estate, outsourcing is always an option, Lynch notes."One of the big advantages of outsourcing," he says, "is the flexibility it gives you for that sort of thing."

Preferred customers
Still, no matter how many DCs they open and how central the locations, shippers will always need truck service. But as many are learning, it's one thing to find a truck; it's another to persuade a carrier to accept their freight. "Carriers have gotten more discriminating," says Lynch, "and they're doing some cherry picking." If they believe doing business with you will help them remain productive and profitable, you're likely to get the nod. If not, you're out of luck.

As for what makes a customer's business profitable, it's not simply a matter of freight volume. Carriers are likely to be equally interested in a steady flow of volume, says Bourne. From their perspective, a profitable customer is one that provides freight during off-peak periods—not just during the busy season. In fact, Bourne discourages the practice of seeking out new carriers to accommodate peak season volumes. "Expansion of a carrier base simply to accommodate a seasonal spike in volume will backfire when that volume dissipates in the months following the holidays," he says. "Partnership-forging leverage disappears when you need to spread an already thin volume over a greater number of carriers. There simply will not be enough to satisfy your promises."

Bourne advises shippers to open discussions about volume with carriers well in advance of peak season—say, in January—and discuss requirements for the whole year. "You have to start [talking] with carriers and [tell them] what you think you will need, with projections for fall and Christmas," he says. But he advises shippers not to get carried away with their forecasts. "Both carriers and shippers need to openly and truthfully discuss each other's requirements and capabilities and craft a plan that benefits both."

It's important to keep in mind that no amount of freight volume will offset a reputation for inefficient loading/unloading operations. To make their business attractive to truckers, shippers would be well advised to review their dock operations with an eye toward eliminating any holdups that keep drivers from getting in and out quickly. That doesn't necessarily mean adding dock doors or commissioning expensive modifications to their facilities. It could be something as simple as making minor adjustments to dock operations to minimize confusion and delays. (See sidebar for tips.) Or it could be something as easy (and inexpensive) as improving communication. "Most credible shippers with good carriers have sat down and talked about it," Lynch says. "They are working more closely together."

Meaningful relationships
One shipper who can attest to that is Keane of Big Lots. Keane says she has made an effort to forge stronger relationships with carriers and third-party providers, with some success. "We have capacity in the lanes needed and prices are competitive," she says.

Though Big Lots uses a dedicated fleet for some of its hauls, it has also relied heavily on spot transportation in the past. That may soon change. Late last year Keane was giving serious thought to signing contracts that would include agreements on commitments and service levels with a select group of carriers.

At the same time, she was also concentrating on improving relations with the company's existing core carriers. In September, she held a conference with representatives from those carriers, including operational managers. The agenda for the first day of the meeting included a look at Big Lots' routing guide and its EDI expectations, a discussion of the potential for the carriers to pick up appropriate one-way outbound lanes, and a look at the inbound forecast for the remainder of the year. On the second day, delegates split into cross-functional groups that were asked to identify at least 10 things that carriers or Big Lots could do in order to be a better business partner. The top recommendations—which included cutting dwell time at the docks, providing advance notice of shipments, and establishing a single point of contact—are already being addressed.

Big Lots is hardly an isolated case. Even the big players, which have been insulated from some of the capacity woes because of their size, are preaching the gospel of collaboration. "We have long-term partnerships with carriers that are recognized as leaders in their markets and have extended competitive pricing to us," says Stephen Inacker, president of hospital supply distribution for Cardinal Health Medical Products. "All carriers are focusing on account profitability," he says. "Therefore, we manage rates very closely and work with carriers on ways to work together to take out cost in doing business with us, thereby allowing us to avoid taking rate increases or to mitigate the large increases."

keep it moving

The last thing a shipper hoping to make its freight "carrier friendly" needs is a reputation for delaying drivers at its loading docks. Consultant Cliff Lynch offers the following suggestions for streamlining operations and getting drivers right back out on the road:

  • Schedule appointments for pickup and delivery—and then honor them. Some shippers have increased lead times for orders so they can give carriers more time to schedule drivers and equipment. Others have changed operating schedules, adding second or third shifts, for example.
  • Insist that carriers adhere to appointments. Don't be afraid to take a tough stand on missed appointments. If a late arrival will disrupt DC operations, insist that the carrier reschedule, even if it means the driver has to come back the next day.
  • Establish a drop and hook system for truckload carriers. The ability to drop off a trailer for loading or unloading at your convenience keeps the driver moving—more essential than ever to carriers under today's driver hours-of-service regulations.
  • Establish a central check-in point for incoming and outgoing freight. Drivers shouldn't have to waste time circling your facility trying to figure out where to go. Establish a point of contact, perhaps at an entrance guard shack, where drivers can be directed to the correct location. And make sure doors are clearly marked, so the drivers can find them quickly.
  • Move all truck traffic counterclockwise around the buildings. That eliminates the need for drivers to back into doors from the blind side. It may save only a few minutes per truck, but the savings will add up quickly.
  • Maintain a secure and comfortable driver waiting area, with telephones, restrooms and a place to sit. This isn't just for security reasons (although you don't want to have a stranger roaming around the facility at will); it's also common courtesy.
Transportation Supply Chain Services Trucking Rail Intermodal Truckload Less-than-Truckload Transportation 3PL Global Logistics Business Management & Finance
KEYWORDS Big Lots Stores C.F. Lynch & Associates Cardinal Health JCP Logistics LP Procter & Gamble
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    Peterbradley
    Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

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