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.
The nation's leading shipper executives didn't rise to the top of their profession by accident. It took resourcefulness and determination, honed by decades of experience and results, to get to where they are.
They will need all of those qualities, and then some, to cope with what is coming at them. However, underestimating their cat-skinning abilities could be a mistake.
To be sure, the obstacles are daunting. To begin with, there's the run-up in fuel costs. The average national price of diesel fuel rose to more than $4.10 a gallon as of April 18, according to the Department of Energy's Energy Information Administration. In California, diesel prices reached a near-punitive $4.44 a gallon. As this story was written, the national average had risen by $1.03 a gallon from mid-April 2010 levels, hitting its highest point since August 2008, when diesel reached a monthly average of $4.30 a gallon. As of mid-April, fuel had surpassed labor as the largest expense for many truckers.
At the same time, tractor counts continue to shrink at a rate that has alarmed even the most seasoned shipper executives. A spate of bankruptcies and a weak economy that forced rigs and trailers off the road has led to a 16-percent decline in truckload capacity from the industry's 2006 peak, according to Transport Capital Partners, a transport mergers and acquisitions advisory firm.
A monthly Shippers' Condition Index (SCI) published by the Nashville, Ind.-based consultancy FTR Associates declined in April to levels not seen since 2004, the firm said in mid-April. The index, which sums up all "market influences" affecting shippers, came in at -7.7 in April, FTR said. A reading below zero reflects an unfavorable climate for shippers.
"Shippers are being hit in two ways as ... base rates are moving higher for all major modes and fuel surcharges are surging," said Larry Gross, senior consultant for FTR. "While there might be some relief later in the year on fuel surcharges, we expect base rates to continue to increase." Although estimates vary, consultancy IHS Global Insight says the average fuel surcharge today is equal to one-fourth of the truckers' base rate for line-haul service.
Tactical maneuvers
Transport costs were much on the minds of an elite group of about 100 shipper executives gathered in Atlanta in mid-April at a conference hosted by Georgia Tech's Supply Chain & Logistics Institute. Executives and analysts attending the National Logistics & Distribution Conference voiced concerns that as fuel surcharges course through the supply chain, the result will be a surge in consumer prices—perhaps as early as the summer—to levels the nation hasn't seen for decades.
One executive, speaking without being identified, said that unless oil prices receded quickly and dramatically, "I don't see how we can avoid consumer price inflation in the double digits later this year."
Yet there was also a sense that shippers will find their way through the morass. From the use of "load bars" that can reduce damage claims by securing freight aboard a trailer, to the development of capacity-sharing arrangements, to paying bonuses to drivers to finish local multi-stop routes earlier than planned to save time and fuel, to simply asking partners if they could adjust their delivery schedules to accept less-expensive services, shippers and truckers will look under every rock in their bid to neutralize higher fuel spend with better productivity—and cost savings—elsewhere.
"I can't offset it completely, but I can minimize the hurt," said Gough Grubbs, senior vice president of logistics and distribution for Stage Stores, a Houston-based retail chain with more than 780 stores operating under the Goody's, Bealls, Palais Royal, Peebles, and Stage brands.
Stage has begun a pooling program with other retailers that operate in roughly the same geographic footprint, Grubbs said. Under the program, Stage's competitors bring their small parcels to one of the company's distribution centers, located in South Hill, Va.; Jeffersonville, Ohio; and Jacksonville, Texas. Once those shipments arrive, Stage will break down the trailers and cross-dock the shipments onto its own trailers—along with its own goods—for outbound truckload deliveries to its 21 hubs that augment the DCs.
The pooling agreement has three-tiered benefits, according to Grubbs. Stage's rivals, which were forced to pay much-higher small-parcel rates because they lacked the density to build less-costly truckloads, now have access to truckload pricing because their shipments ride along with Stage's freight. Stage benefits by filling its trailers faster, thus avoiding the cost of holding a rig and trailer overnight to build a truckload. And the trucker gains by having more freight to transport. In addition, service levels increase because the supply chain is effectively sped up, Grubbs said.
Stage has already signed up two retailers, the names of which Grubbs wouldn't disclose. A third was expected to come on board by the end of May, and talks were ongoing with six more retailers, he said.
The agreement and others like it herald a new era in supply chain cooperation, Grubbs said. Today's mantra is "we compete on the shelf and collaborate in the supply chain," he said, adding that the company "welcomes any inquiries from companies who believe their circumstances fit this model."
At the heart of Stage's strategy is to create as many truckload shipments as possible and reduce its reliance on less-than-truckload (LTL) or small-parcel service, where the shipping costs can be up to 40 percent greater. Grubbs estimates that about 90 percent of Stage's annual inbound deliveries of 9 million cartons now move in truckload service, up from about 70 percent four to five years ago.
Going for full loads
Converting freight from LTL to less-costly truckload service is also the holy grail of The Home Depot Inc.'s five-year supply chain transformation plan, which is now nearing completion. The Atlanta-based home improvement giant has created 19 "rapid deployment centers" (RDCs), which are flow-through facilities that, as with Stage's plan, enable the cross-docking of large quantities of merchandise.
By leveraging the RDCs, suppliers who used to ship direct to stores using LTL service can now consolidate their shipments into truckload quantities for shipping to the facilities.
Mark Holifield, Home Depot's senior vice president, supply chain, said the company should realize 40 basis points—roughly 0.4 of 1 percent—of profit margin improvement largely through the savings in converting LTL to truckload. Given the company's $55 billion in annual sales, that level of margin expansion is significant, Holifield said.
In addition, Home Depot is looking to share capacity with other retailers on its dedicated contract carrier network, according to Michelle D. Livingstone, the company's vice president, supply chain-transportation. Under the dedicated concept, a shipper commits to a multi-year contract where it tenders a certain amount of volume and pays for transportation on a round-trip basis. In return, the shipper gets predictable capacity and pricing, no small matter in the current volatile environment.
Holifield said that Home Depot, one of the world's largest users of LTL services, would like to dramatically shrink its use of LTL. Both he and Livingstone stressed, however, that the company would always rely on LTL to some degree, given the requirements of its supply chain.
An orderly approach
Some shipping executives may be loath to re-engineer their networks in response to the current fuel pressures, perhaps not feeling the same sense of urgency today after recalling how the 2008 spike was followed by an equally violent price downdraft after the economy collapsed.
Chuck Taylor, whose firm consults with companies on the interconnections between energy and the supply chain, said shippers and carriers were so focused on surviving the recession and riding the recovery that they paid scant attention to escalating oil prices. The recent run-up, he said, "is catching many off guard."
Taylor, who has long preached that the supply chain must adjust to permanently elevated oil prices, said he has "heard nothing about any new or innovative approaches" to counteract rising energy costs. "It seems to be a stunned acceptance of higher fuel prices followed by the usual beat-the-carrier-down approach," he said.
Starbucks Coffee Co. is trying to take an orderly approach to the problem. For the past year, the Seattle-based giant, which each year consumes about 7 million gallons of fuel moving product from its DCs to its thousands of retail stores, has been modeling various supply chain scenarios and responses with oil at different price points, according to Gregory Javor, Starbucks' senior vice president, supply chain operations, global logistics.
Javor told the conference that with diesel fuel prices at mid-April levels, the company is "ready for a refresh" of its transport network requirements. It is considering expanding its current DC capabilities, and adding to its network of five regional facilities to bring inventory closer to its customers, Javor said. Starbucks has tripled its use of more cost-effective intermodal service on inbound consignments into its DCs and will use more intermodal if necessary, Javor said.
In the past 12 months, Starbucks has cut fuel usage 3.6 percent by reducing delivery frequencies, reconfiguring the location of what it terms its "last-mile facilities," and integrating more energy-efficient vehicles into its fleet, Javor said. The company will continue to drill deep into its transportation system to uncover cost-saving opportunities, he added. "Transportation connects all the dots," Javor said in an interview following his presentation.
Brian P. Clancy, managing director and co-founder of Logistics Capital & Strategy LLC, an Arlington, Va.-based consultancy, said higher fuel prices will force many businesses to shrink the length of haul from DC to retailer, and to ship in large quantities to achieve economies of scale. "To accomplish this, additional and larger warehouses will be needed, which implies more stock and higher inventory levels and costs," he told the group.
Clancy said the big winner in all of this could be Mexico, a country where cumbersome regulations, primitive infrastructure, a reputation for corruption, and language barriers have kept many producers away. With fuel and transport costs on the rise, however, producing closer to the U.S. market is starting to look more attractive than manufacturing in Asia and shipping across the Pacific. In a recent survey by his firm of 250 U.S., European, and Asian manufacturers with a presence in Mexico, 200 said they plan to either maintain or expand operations there.
"Mexico is finally going to get its turn," he said.
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.