The Year in Review – The top freight transportation stories of 2012
December 20, 2012
December 20, 2012
As the year 2012 draws to a close, it is time to reflect on the major transportation stories of the year. Here are the ones that stood out to me.
1. CP Rail’s Shareholder Revolt
CP Rail is a landmark Canadian company that has played an important role in the country’s history. It made a unique kind of history in 2012 when Bill Ackman, head of US hedge fund Pershing Square Capitol Management, led a shareholder revolt that resulted in the ouster of CP Rail’s president and several board members. While this was the major transportation story of the year, it resonated throughout the board rooms of North America as underperforming companies, in other industries, were served notice. Shareholder activism can be very powerful if a company’s leaders do not produce results that are in line with market expectations.
The latest chapter in the CP Rail story is currently being written as its new CEO, Hunter Harrison, the former CEO of CN Rail, is taking aggressive action to improve asset utilization and improve transcontinental intermodal service. As this blog was going to press, CP Rail announced that it plans to cut 4500 employees or roughly 28 percent of its workforce over the next three years. Stay tuned for the next set of chapters in the history of this famous Canadian company.
2. Wal-Mart’s 60 Foot Tractor-Trailer
Each year Wal-Mart blazes a new trail on the road to leadership in supply chain efficiency. In recent years Wal-Mart has led the charge on RFID, on packaging optimization and on a host of green initiatives. This year, Wal-Mart pulled a new “rabbit out of a hat” by developing a prototype 60 foot tractor-trailer unit that caught the transportation industry off guard. The prototype has 28 percent more capacity than a traditional 53 foot trailer and can carry 40 percent more freight when a “drome” or belly box that fills the wasted space between the trailer’s wheels, is included. The prototype will be trialed in Ontario, Canada where the retailer has received a permit to operate it. If successful, it may be rolled out in other provinces and U.S. states where permits can be obtained.
3. The YRC Recovery
The merger of two of North America’s best known LTL carriers, Roadway Express and Yellow Freight System, has produced nothing but heartache for its shareholders over the past several years as billions of dollars in losses were incurred. The YRC story took a new and positive turn in 2012. James Welch, reprising the role of Steve Jobs at Apple, has come back to YRC to lead the company back to stability. While YRC’s operating ratio is well below some of its Best in Class competitors, the company is at least producing a positive operating profit and seems to have returned to a focus on its core LTL business.
YRC’s survival is good news to shippers. The company’s collapse would mean the loss of a huge block of capacity and would likely result in major freight rate increases. If YRC stays in the LTL game, it keeps the other players on their toes and provides shippers with more options.
4. The Ultra Slow Economic Recovery
Unlike other economic recoveries, this one is particularly slow. As we approach year end, the United States still has an unemployment rate of 7.9 percent with over 23 million citizens out of work. The high unemployment and high debt levels have provided strong headwinds to the recovery and have had a direct effect on trucking firms throughout North America. Combined with a lack of consumer confidence, this has inhibited trucking firms from making investments in new equipment. It also limited the requirement for qualified drivers. A serious driver shortage did not take place in 2012. Ample truck capacity also helped put a lid on freight rate increases.
While there was some encouraging economic news this year (e.g. uptick in housing starts, improvement in household balance sheets), the ongoing debate over America’s debt levels and so-called fiscal cliff, is not helping spur growth. The modest economic recovery has been a major transportation story for the past couple four years and 2012 was not a breakout year.
5. Same Day Deliveries in the Retail Sector
The internet has transformed a number of industries such as books, electronics and music. Each year, many consumers are increasing their online purchases of a variety of items. To respond to customer demand for rapid delivery of their purchases, companies like eBay and Wal-Mart stores are putting pressure on their transportation partners to deliver customer orders on the day of purchase (e.g. same-day delivery). To compete, Amazon and Google are also trialing same-day delivery in certain markets. They are turning to local and major small parcel players such as UPS. Of course, these types of changes drive new processes, expanded warehousing capabilities and carrier start-ups. While some retailers appear to be “eating” the cost of transportation to grow their market share, watch this sector develop as it achieves more critical mass.
6. Trucking Takes to the Rails
The year 2012 was a “transformational” period for intermodal transportation as trucking companies, large and small, added intermodal service to their portfolios. Many truckers realized that long haul drivers are getting harder to find. As a result, they chose to focus their resources on short and medium haul lanes and shift their longer haul lanes to intermodal service. This led truckers to view the railroads as service providers rather than enemies.
J.B. Hunt has been the leader in migrating much of its full load business to intermodal service. Schneider National, another huge player, is now moving a third of its truckload business on the rail. U.S. Xpress and Swift Transportation are growing their intermodal programs. To support these initiatives, Norfolk Southern and CSX expanded their eastern U.S. networks to handle increased volumes. To further bolster their service, the railways have been offering “expedited” rail service on distances less than 1000 miles and supplying 53 foot domestic containers.
Compliance, Safety, Accountability (CSA) is a U.S. Federal Motor Carrier Safety Administration (FMCSA) initiative to improve large truck and bus safety and ultimately reduce crashes, injuries, and fatalities that are related to commercial motor vehicles. Rolled out in December 2010, it introduced a new enforcement and compliance model that allows FMCSA and its State Partners to contact a larger number of carriers earlier in order to address safety problems before crashes occur.
The FMCSA implemented a number of improvements to its CSA safety enforcement program in 2012, including dropping the Cargo-Related BASIC and adding a new Hazardous Materials BASIC that is expected to put more scrutiny on carriers hauling hazmat. The improvements, which were initially announced last August, include changes to a number of the Behavior Analysis and Safety Improvement Categories that the agency uses to keep track of carrier performance.
Announcing the changes, agency administrator Anne Ferro said CSA is an effective program that has had a positive effect on safety. She cited an 8% decline in violations at roadside inspections, and a 10% drop in driver violations per inspection in the last calendar year. “These represent the most dramatic decrease in violation rates in a decade,” she said.
8. Natural Gas hits Energy Utilization Milestone
One change went unnoticed this year by most shippers and carriers in the United States. In April 2012, the amount of electricity generated by natural gas-fired power plants equaled that produced by coal-fired plants for the first time, with each accounting for 32 percent of total U.S. power generated. This is the lowest coal percentage since the 1970s. The sheer abundance and low cost of natural gas is making it an attractive option as an alternative fuel for trucks, and potentially for locomotives and container ships.
While the percentage of natural gas as compared to diesel fuel is very small at present, the conversion process could be driven by early adopters seeking to secure cost savings. Of course, the widespread use of natural gas would require major investments in infrastructure. Nevertheless, this year’s milestone event and the willingness of selected truckers (e.g. Robert Transport) to purchase and trial LNG vehicles suggest that this is a trend that needs to be followed closely in the years ahead.
9. Freight Bids become a core Procurement Tool
In 2012, freight bids became so prolific in carrier procurement/rate negotiation exercises that they were employed by shippers with as little as $25,000 in freight costs per year. The bid process has had multiple effects on the transportation industry. Done well, they force shippers to package and leverage their high volume freight to achieve maximum savings in freight costs. They provide a structured, methodical way to procure freight services. Done poorly, they are a nuisance to carriers since poor data and a weakly constructed RFP are a waste of time and produce rates that are not in line with business volumes or the shipper’s freight characteristics.
Conducting FRPs has become an industry all to itself. There are companies that provide the software to run the bid events. There are companies that specialize in the design and execution of freight bids. The freight bid process, for some companies, is replacing the normal sales process. Rather than maintain relationships with carriers across the various modes, shippers in downsized companies, can use the RFP process as their annual mechanism to secure and negotiate rates.
10. Forward Thinking Carriers Invest in Technology
Financially stable carriers seeking to gain competitive advantage invested in technology in 2012. This included fuel efficient equipment, testing LNG or hybrid equipment, improved driver screening and training. Creating and growing their brokerage/logistics businesses was also a trend. Larger carriers made investments in technology beyond basic load matching services to increase their margins. Transportation management as compared to basic freight brokering continues to evolve. Using a managed transportation management system (TMS), companies can provide contract management, load optimization, freight auditing and payment. The top carriers are using yield management tools to rank their clients on profitability and tailor rate increases to specific shipper requirements.
As 2012 comes to an end, I thank all of the readers of this blog for their support and feedback during the year. I welcome suggestions on blog topics. Happy Holidays!
Posted by Dan Goodwill on December 7, 2012 9:32 AM | Permalink | Comments (0)
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill