Bad weather, tight capacity made for soaring costs and tense times for the trucking industry in the first quarter. Was this an anomaly or the shape of things to come?
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.
On a balmy Florida morning in mid-April, Gail Rutkowski, executive director of the shipper group NASSTRAC, took the microphone at her organization's annual conference and proceeded to give a couple of service providers an earful.
Freight brokers, Rutkowski said, are eager to negotiate rates with shippers yet are willing to break their contractual commitments should capacity tighten and a truck is no longer available at the predetermined rate. Brokers and their carriers want the stability of committed volumes at negotiated rates, yet carriers also want the freedom to reposition their assets should circumstances dictate, said Rutkowski, a 40-year industry veteran. "You can't have it both ways," she told broker executives in a NASSTRAC panel session aptly titled "Ten Things I Hate About You: An In-Depth Look at the Shipper/Broker/Carrier Relationship."
Rutkowski verbalized the frustrations of shippers reeling from one of the most brutal quarters in U.S. transportation history. Terrible weather in huge swaths of the country during January, February, and early March kept many trucks off the road for extended stretches. Rail intermodal networks were hammered, which had the dual effect of denying truck shippers access to an alternate transport mode and forcing traditional intermodal users onto the highways. Smaller truckers picked up some of the slack, but they too were prone to shift assets to the spot market to capture higher rates.
With their contracted truck services often unavailable, shippers were left to the mercies of the spot market. Not surprisingly, they paid dearly for space. Spot rates for dry van services—the most common type of truckload transportation—climbed to between $1.95 and $2.09 a mile during the quarter (including fuel surcharges), according to DAT, a consultancy that tracks the market. The firm's load-to-truck ratio, which measures the ratio of loads to available trucks, doubled from the levels of two years before, a reflection of far more demand than supply.
Market participants accustomed to short-term surges normally due to a natural disaster were stunned by the cycle's longevity. "It was remarkable, almost like a once-in-a-lifetime experience," said Kerry R. Byrne, executive vice president of Total Quality Logistics (TQL), a Cincinnati-based broker.
Spot rates have remained high into the summer as the trucking supply chain moved through its seasonally strong period, an improving economy stimulated freight demand, and some third-quarter orders were pulled forward into the second quarter ahead of a possible work stoppage at West Coast ports. Dry van rates averaged $2.08 a mile (including fuel surcharges) during June, according to DAT data. Rates for flatbed and refrigerated transport soared as the market struggled with seasonally high demand for construction equipment and produce.
In a mid-July interview, Rutkowski stood by her pronouncements at the NASSTRAC conference. "During [the first quarter], shippers experienced brokers—and to a lesser extent, carriers—refusing to honor contracted pricing and forcing shippers to pay much higher spot rates to move their freight," Rutkowski said. The behavior "caused a lot of bad blood between shippers, brokers, and carriers," she noted. Rutkowski added that the hostility has abated somewhat since then and that shippers have become more "carrier friendly" when crafting requests for proposals. She didn't elaborate.
For their part, broker executives on the NASSTRAC panel said they were caught in much the same first-quarter maelstrom as their customers. "The capacity crunch was greater than any of us could have planned for," said Eric McGee, senior vice president of transportation for J.B. Hunt Transport Services Inc., the diversified truckload giant that has a fast-growing brokerage operation. McGee said Hunt's truckers were charging rates that were up "double-digits" from a year ago. McGee added that Hunt never intends to leave its shippers hanging. "In normal circumstances, we are committed to our customers to honor what we signed up for," he said.
Rob Kemp, president and founder of DRT Transportation LLC, a broker with about $65 million in annual sales, said the situation was so bad in the first quarter that loads would not get moved even if they could fetch much more than the contracted rate. Kemp said that DRT honors its contractual commitments to the point that it will lose money on the load rather than turn it away. "I looked at our book of business the other day, and about 8 percent of the loads on our board lost money," he told the audience.
MORE THAN MOTHER NATURE
No one doubts that weather conditions played a major role in the first-quarter nightmare. The storms were as widespread and prolonged as they were fierce. Yet every first quarter spells weather problems for the U.S. freight network. What made this year different? First off, the elements amplified an already-strained market for carrier supply. The industry entered 2014 facing a well-documented shortage of drivers as well as the reluctance of carriers to add equipment in the face of escalating costs and the lack of a sustained pickup in demand. An increase in the number of trucking company failures hasn't helped; an estimated 390 companies and 10,650 trucks left the road in the first quarter, according to Avondale Partners, an investment firm; in 2013's second quarter, 205 companies and 4,745 trucks exited the market, the firm said.
Over the past four quarters through this June, about 3 percent of the nation's for-hire fleet and between 10 and 15 percent of spot market capacity left the market, according to the Avondale study. The rise in trucking failures comes as freight volumes increase, a phenomenon that Donald Broughton, an Avondale managing partner who oversees the report, said he's never seen in examining data from the past quarter century.
Carriers also began the year coping with reduced productivity due to the Federal Motor Carrier Safety Administration's new regulations governing a driver's hours of service. The rules, which were enforced in July 2013, reduced a driver's workweek and changed drivers' rest cycles. According to most estimates, they have shaved between 3 and 5 percent off a typical carrier's available asset utilization. Peggy Dorf, an analyst at DAT, said the network had trouble this past winter adjusting to its first cold-weather cycle under the rules. She said the rules should have less of an impact next winter because the industry now has a year of experience working with them.
The growing influence of freight brokers has become a key factor in driving up demand for and cost of space. According to a recent survey of large shippers by Morgan Stanley & Co., 37 percent used six or more brokers in June, compared with 30 percent in June 2012. Shippers no doubt are using more brokers in hopes of increasing their chances of finding affordable capacity. However, this has resulted in a growing number of potential buyers chasing a declining pool of trucks. Rutkowski said she doesn't see this trend reversing any time soon.
Then there is old-fashioned capitalism. Like most free-marketers, truckers sought to "make hay while the sun shone," or, in this case, as the snow fell and the ice formed. With space at a premium and fat spot market rates beckoning, it would only be natural for carriers to migrate their assets to the spot market or to tell their users their contracted capacity would need to be repriced. "Why should I move freight for $1.35 a mile when I could get $2 a mile without any trouble?" said Charles W. Clowdis Jr., managing director, transportation, at IHS Economics, a unit of consultancy IHS Global Insight.
Shipper-carrier contracts generally contain language committing the carrier only if equipment is available, Clowdis said. This effectively gives the carrier an escape hatch to shift rigs and trailers to the spot market, and leave the contracted shipper in the lurch, he said.
WHAT DOES THE FUTURE HOLD?
The prolonged nature of the current cycle, and the seemingly secular trends behind it, will be on everyone's mind as the bidding process for peak-season business gets under way. Shippers have held the upper hand for most of the past eight years as a subpar economy and truck oversupply left carriers clamoring for business. That leverage is gone, and with it any thought of shippers' punishing their carriers for purportedly bad behavior in early 2014. "Shippers cannot afford to have a 'retribution' approach" anymore, said C. Thomas Barnes, president of Con-way Multimodal, which procures capacity for the Con-way companies as well as for other users.
Barnes said that justice is finally being served on those shippers who took advantage of the multiyear downturn starting in 2006 to play carriers off against each other in an effort to get the lowest price for their freight. "A lot of shippers misbehaved between 2007 and 2009," he said. Barnes noted that trucking executives have warned for years that shippers who stayed around during the bad times would be rewarded when the pendulum swung, while those who, in his words, "played the transactional game" could find themselves without wheels.
Meanwhile, truck users are doing what they can to protect themselves. Con-way Multimodal and truckload giant Werner Enterprises recently signed a three-year agreement for Werner to supply the Con-way operating companies with an adequate amount of assured capacity; the agreement is an extension of previous compacts between the two. Byrne said he is using TQL's technology to provide carriers with value-added benefits such as identifying backhaul opportunities on various lanes. And shippers that wouldn't have even thought of it in the past are now asking their carriers what they can do to make their freight more "carrier-friendly."
Clowdis of IHS said savvy shippers should see the turning of the worm and give carriers what they want most: more money. He added that in return for capacity assurance, shippers should offer to pay a 20-percent premium over the going rate. If the shipper's loads fall below the agreed-upon level, the shipper should compensate the carrier for the difference, he said.
"In this environment, that is what a wise shipper would do," he 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.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist 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.
After years in the military, service members and their spouses can find the transition to civilian life difficult. For many, a valuable support on that journey is the U.S. Department of Defense (DOD) SkillBridge program. During their final 180 days of service, participants in the program are connected with companies that provide them with civilian work experience and training. There is no cost to those companies while the service member continues receiving military compensation and benefits.
Both sides benefit from the program. “We’re proud to work with SkillBridge to give back to our military veterans for the bravery and sacrifices they’ve made for all of us,” Troy Pederson, director of training and development at LiftOne, a Hyster-Yale dealer and established SkillBridge employer, said in a release. “In the last year, we’ve helped 10 SkillBridge interns transition from military to civilian life, and the value and positive impact of the program can’t be overstated. At LiftOne, we’ve gained so much from the experience and diverse mix of technical and leadership skills of our SkillBridge candidates.”