Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
That may be a reasonable question for trucking executives to ponder as they start 2010. That is,
if they aren't too busy beating each other up over pricing to think through the consequences of
their actions.
As a grinding freight recession ended its third year, the rate environment for truckload and, in
particular, less-than-truckload (LTL) services, continued to weaken. Pricing trends in both
categories deteriorated considerably in the third quarter from the first half of 2009, according
to data culled from company reports and compiled by investment banker JPMorgan Chase. Even
railroad pricing on commodities for which the rails compete with truckload carriers has been
hurt by the weakness in truckload rates, according to the firm. Only ground and express parcel
services showed a sequential pricing improvement through the first three quarters of 2009,
according to the JPMorgan data.
Industry veterans have rarely seen anything like it. Michael Regan, CEO of TranzAct Technologies Inc., an Elmhurst, Ill.-based consultancy that over the years has negotiated and purchased billions of dollars of LTL capacity for shipper clients, says he's seen discounts of as much as 90 percent below retail, or tariff, rates.
The pain is being felt across the carrier spectrum. For example, two of the healthiest LTL
carriers, Old Dominion Freight Line Inc. and Con-way Inc., posted sub-par revenue and net income
results in the third quarter of 2009, with the top executives at both companies attributing their
respective performances to declines in tonnage and aggressive pricing competition.
"Overall, the business environment continues to present formidable challenges, characterized
by weak demand, excess capacity, and pricing pressure. We expect these conditions to persist in
the near term, diminishing the prospects for earnings growth," Con-way President and CEO Douglas
W. Stotlar said in a statement accompanying his company's results.
William D. Zollars, chairman and CEO of YRC Worldwide Inc., the nation's largest LTL carrier,
said he doesn't expect
a meaningful economic or freight rebound during the first half of 2010 and that rate weakness
will likely continue at least through that period. In an interview with TranzAct's Regan, Zollars
said YRC has been disciplined about pricing, noting it increasingly walks away from freight it
deems to be unprofitable.
"We don't want to be acting like our competitors who are 'fire-saleing' things for various
reasons," Zollars said in the interview.
Yet that didn't stop YRC from discounting its rates by as much as one-third through at least
the end of 2009. Jon A. Langenfeld, a transport analyst for Milwaukee-based Robert W. Baird & Co.
who reported the YRC move in a recent research note, said the action represents more "pricing
aggression" that will impede a meaningful recovery in prices and negatively impact LTL
profitability well into 2010.
Self-inflicted wounds
For carriers, the wounds have been largely self-inflicted. Beset by soft freight flows and
persistent overcapacity—the consensus among analysts is that there is 20 percent excess
capacity in the LTL sector—truckers have spent the better part of 2009 slashing rates to
win or keep business.
At the same time, carriers remained loath to remove capacity, keeping the supply-demand scale
firmly tilted in favor of shippers. Satish Jindel, head of SJ Consulting, a Pittsburgh-based
consultancy, says with the exception of YRC, no major LTL carrier took out capacity in more than
single-digit amounts last year. By contrast, YRC removed up to 30 percent of its capacity by
shuttering several regional operations and cutting 190 terminals from its YRC National unit during
the 2009 integration of Yellow Transportation and Roadway Express into the new entity.
Most of the predatory pricing was aimed at
taking share from YRC to drive the financially troubled carrier out of business and eliminate a
large source of supply. However, it appears those plans will have to be put on hold.
A November 2009 agreement under which
YRC's bondholders planned to exchange their debt for 1 billion newly issued equity shares—a
deal that will allow YRC to eliminate nearly $400 million in 2010 interest payments and give it
access to a revolving credit line of more than $100 million—is likely to keep the trucker
afloat at least through the end of 2010. This gives YRC critical breathing space to remain
competitive with a smaller, more efficient network that Zollars said "fits our business volumes
pretty well." At this writing, the swap had yet to be consummated.
Faced with the prospect of a surviving and perhaps recovering YRC, its rivals may take the
pedal off the pricing metal and look for different ways to remain competitive. "We think carriers,
once they realize YRC's financial situation isn't as precarious as it was, may step back and
create some stability in pricing," says Jindel.
That could actually be good news for shippers, who while being the beneficiaries of a
year-long rate gift that kept on giving, understand that in the long run, a carrier's inability
to earn an adequate return may deter it from making the investments needed to deliver a quality
product.
Regan of TranzAct believes shippers have picked most of the low-hanging rate fruit and should
not expect carriers to slash prices much further for fear of failing to cover even their variable
costs. "The bigger shippers have already grabbed the bulk of the savings that are there," he says.
Regan expects LTL rates to remain flat year over year, barring any unexpected developments.
Light at the tunnel's end?
There may be some light at the end of this very dark tunnel. Truckload rates, which normally lead
LTL pricing by many months, appear to have bottomed in late 2009 and are poised for an upward spike. If history is any guide, LTL rates should firm up sometime in 2010.
But these are not ordinary times. Unlike the LTL category, the truckload sector has already seen
a significant reduction in capacity during the recession. LTL overcapacity is likely to remain an
issue even after freight volumes recover.
Another and perhaps more profound trend is a shift in what Jindel called a shipper's "product
characteristics." Tonnage has traditionally been the bread and butter of LTL carriers. Yet the
goods being produced today are lighter and smaller than ever before, leading to painful declines
in tonnage tendered to the carriers.
Jindel says much of this lighter, smaller freight is being increasingly "converted" to
parcel services, a factor that may explain why parcel pricing
held up relatively well through most of 2009. The analyst says the shrinking in cargo size and
weight is a long-term trend, and LTL carriers must reposition their value propositions accordingly
or risk losing more business to parcel companies. "This is a more important long-term issue for LTL
than pricing," he says.
With its new AutoStore automated storage and retrieval (AS/RS) system, Toyota Material Handling Inc.’s parts distribution center, located at its U.S. headquarters campus in Columbus, Indiana, will be able to store more forklift and other parts and move them more quickly. The new system represents a major step toward achieving TMH’s goal of next-day parts delivery to 98% of its customers in the U.S. and Canada by 2030, said TMH North America President and CEO Brett Wood at the launch event on October 28. The upgrade to the DC was designed, built, and installed through a close collaboration between TMH, AutoStore, and Bastian Solutions, the Toyota-owned material handling automation designer and systems integrator that is a cornerstone of the forklift maker’s Toyota Automated Logistics business unit. The AS/RS is Bastian’s 100th AutoStore installation in North America.
TMH’s AutoStore system deploys 28 energy-efficient robotic shuttles to retrieve and deliver totes from within a vertical storage grid. To expedite processing, artificial intelligence (AI)-enhanced software determines optimal storage locations based on whether parts are high- or low-demand items. The shuttles, each independently controlled and selected based on shortest distance to the stored tote, swiftly deliver the ordered parts to four picking ports. Each port can process up to 175 totes per hour; the company’s initial goal is 150 totes per hour, with room to grow. The AS/RS also eliminates the need for order pickers to walk up to 10 miles per day, saving time, boosting picking accuracy, and improving ergonomics for associates.
The upgrades, which also include a Kardex vertical lift module for parts that are too large for the AS/RS and a spiral conveyor, will more than triple storage capacity, from 40,000 to 128,000 storage positions, making it possible for TMH to increase its parts inventory. Currently the DC stores some 55,000 stock-keeping units (SKUs) and ships an average of $1 million worth of parts per day, reaching 80% of customers by two-day ground delivery. A Sparck Technologies CVP Impack fit-to-size packaging machine speeds packing and shipping and is expected to save up to 20% on the cost of packing materials.
Distribution, manufacturing expansion on the agenda
The Columbus parts DC currently serves all of the U.S. and Canada; inventory consists mostly of Toyota’s own parts as well as some parts for Bastian Solutions and forklift maker The Raymond Corp., which is part of TMH North America. To meet the company’s goal of next-day delivery to virtually all parts customers, TMH is exploring establishing up to five additional parts DCs. All will be TMH-designed, owned, and operated, with varying levels of automation to meet specific needs, said Bret Bruin, vice president, aftermarket sales and operations, in an interview.
Parts distribution is not the only area where TMH is investing in expanded capacity. With demand for electric forklifts continuing to rise, the company recently broke ground for a new factory on the expansive Columbus campus that will benefit both Toyota and Raymond. The two OEMs—which currently have only 5% overlap among their customers—already manufacture certain forklift models and parts for each other, said Wood in an interview. Slated to open in 2026, the $100 million, 295,000-square-foot factory will make electric-powered forklifts. The lineup will include stand-up rider trucks, currently manufactured for both brands by Raymond in Greene, New York. Moving production to Columbus, Wood said, will not only help both OEMs keep up with fast-growing demand for those models, but it will also free up space and personnel in Raymond’s factory to increase production of orderpickers and reach trucks, which it produces for both brands. “We want to build the right trucks in the right place,” Wood said.
Editor's note:This article was revised on November 4 to correct the types of equipment produced in Raymond's factory.
“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
By the numbers, shipments were down 1.9% compared to the previous quarter while spending dropped 1.4%. This was the ninth consecutive quarterly decrease in volume, but the smallest drop in more than a year.
Truck freight conditions varied greatly by region in the third quarter. In the West, spending was up 4.4% over the previous quarter and volume increased 1.1%. Meanwhile, in the Southeast spending declined 3.3% and shipments were down 3.0%.
“It’s a positive sign that spending contracted less than shipments. With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA), said in the release.
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $42 billion in freight payments annually for shippers and carriers across the U.S. The Index insights are provided to U.S. Bank customers to help them make business decisions and discover new opportunities.
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.