The current slowdown in the North American economy,
and fears of a looming recession, are sure to put the relationships forged by shippers and carriers in recent years to the test. Thanks to sometimes conflicting cost pressures and service demands, buyers of transportation services tend to have different viewpoints from the people who provide them with those services.
So how do shippers and carriers view the issues facing them in 2008? Are there significant degrees of divergence? That’s what we wanted to find out in putting together our second annual Shipper-Carrier Issues Roundtable.
Our roundtable participants had a great deal to say and so we are sharing their insights with you over the course of two issues. In Part I of our Issues Roundtable our participants spoke about their economic outlook for 2008 and the related issues of rate trends, imbalances and capacity. ( See your November/December issue of Motortruck Fleet Executive and also go to www.trucknews.com for video clips from the roundtable provided in a special installment of our new Web TV show Transportation Matters.)
In this second and final installment our participating transportation executives speak frankly and insightfully about the impact of the rising dollar and the case for currency surcharges, as well as how technology investments can be used to boost efficiencies and cost savings.
BIG Transportation Media, through its ownership of both motor carrier and shipper publications, is in the unique position of being able to see issues from “both sides of the fence.” We consider it our mandate to foster dialogue between buyers and providers of transportation services. Our annual Shipper-Carrier Issues Roundtable, which is published in both our carrier and shipper publications, is a step towards that goal. It allows buyers and providers of transportation services across the country to gain a more well-rounded understanding of the issues at hand.
This roundtable would not have been possible without the support, once again, of Shaw Tracking and I wish to thank this highly respected industry player for its support. I would also like to thank all the roundtable participants who took time out of their hectic schedules to make this roundtable a possibility. As with past participants, these individuals were specifically chosen because of the high-esteem with which they are held within the transportation industry and their insightful and honest contributions certainly showed why.
I think one of the most impressive developments in transportation management I’ve witnessed over the almost two decades that I’ve been reporting on the industry is the willingness of forward-thinking shippers and carriers to truly appreciate their interdependence and work together to resolve issues in a manner beneficial to both. I hope the strain placed on the shipper-carrier relationship by the slowing down of the economy does not make for a setback in that evolution, particularly because it is the carriers and shippers who work well together that are most likely to get a jump start on the eventual resurgence of the North American economy.
MT:Obviously the rising value of the Canadian dollar has caused concern for carriers, particularly those running stateside and getting paid in the now lower-valued US funds. Yet some shippers also counter that our dollar’s rise makes this a perfect time to invest in new equipment so that carriers can be ready for the next upturn in the economy. Is that a smart strategy at the moment?
Smith: If you need to upgrade your fleet, the opportunity is great but I’m not sure that’s going to push a lot of equipment purchases. I think there are other things that mitigate that opportunity. One is the 07 pre-buy that a lot of people did. The extra capacity right now is also not pushing fleets to buy new equipment. And, in some cases, probably a tighter credit market as well.
DiTecco:And if you are trading in you are getting less for your trade in. It’s worth less because the dollar is worth more. If you need the equipment, you buy it, but I don’t think there is an incentive today just because the dollar is stronger. You’re gaining on the one hand and losing on the other.
Johnston: Our industry has in the past been primarily family-owned and absolutely resilient, with entrepreneurial risk takers who have often introduced assets and capacity without perhaps defined demand. But I have to say that over the last 36 months that has changed – for anybody running a major transportation company in Canada, it’s almost like getting an economics degree. We used to be far more comfortable in the shop and working with our assets and today I think we are all quite fluid in working with our financial statements and our spread sheets, trying to figure out what’s going on. The industry is far more astute today in terms of return on capital and investment than we have been in the past.
MT:Doug, we’ve touched on this in the past, with you mentioning that perhaps a slower and more methodical approach to growth is better than some of the fits and starts we’ve experienced where we add capacity and push rates to try to get as much as we can out of an economic opportunity and then hanging on for the eventual downturn. Is the industry somewhat to blame for its troubles because it has not chosen a more methodical approach to growth?
Munro: I’m not sure. I think it’s the law of economics that’s at play – supply and demand. When everything is going up, everyone wants to buy and there is customer demand in response to that and then it changes quickly and catches people unprepared… I don’t know if there is an answer to that. I believe there will be more capacity issues down the road as there is a shakeup of the market and consolidation that will occur. But beyond that, I’m sure no customer wants to put a carrier out of business but they don’t know what our costs are. When they look in the market and see price X from one carrier and price Y from another carrier, they are going to take the lowest price and you really can’t blame the shipper for thinking that way if they are worried about their own business. So I think we have to ride the market up and ride it down just like every other business.
MT:I want to go back to the impact of the dollar. I remember when the dollar first started to rise a few years ago, some of the transportation industry experts cautioned that there is no way that a trucking company can take a 20% hit to their revenue base and survive so why not introduce a surcharge to cover fluctuations in the exchange rate? The dollar has since risen even higher but I know from our own research that not many shippers are paying a currency surcharge and I haven’t heard the pro-currency surcharge argument made in a while. Is there still merit in doing so?
DiTecco: We have a small amount of receivables in US dollars and we do have a conversion that we change every week. We have a formula that we discuss with our shippers and say this is how we have to do business. There is no way you can afford to take 20% or 30%.
Johnston: Treasury management has become a critical point in defining any successful transportation company. Balancing your US receivables with US payables when you buy equipment is one of the ways to insulate yourself. We’ve had a currency matrix that basically follows the currency and insulates both parties against fluctuations. Sometimes it swings in the shipper’s favor when the dollar moves in a negative direction and sometimes it insulates the carrier when it moves in the opposite direction. That way you don’t have to go back and requote. This is a capital intensive, low-margin industry. If a carrier did some spot moves 90 days ago, given the shift the dollar has taken, breaking above the $1 US and then going up to $1.10., the rates quoted 90 days ago now put them upside down. You don’t make 10 points in the full truckload market.
MT:So for the buyers of transportation, are carriers coming to you complaining that the currency situation is hurting them too much and want to introduce a currency surcharge?
Jensen: We’ve always had currency fluctuations but they have been gradual and slow. About four years ago, they became quite volatile. Historically we had done all our transportation procurement crossborder in US funds, so we changed that policy to contract the carrier in their currency of origin. We contract Canadian carriers in Canadian funds and US carriers in US funds. At the same time we also built an emergency surcharge procedure which I was prepared to implement on a weekly basis. Four years later I haven’t had to implement that emergency surcharge and I hope I never do. We’ve resolved the problem by paying the carrier in the currency of his origin.
MT:So when the Canadian carrier turns around in the US and comes northbound, he’s then paid in US funds?
Jensen: No, the Canadian carrier in both directions is paid in Canadian funds. What’s happening with the north-south move is a separate issue which goes back to the rate question. There is such a lack of volume going south we are seeing an increase in northbound rates and a reduction in southbound rates. But roundtrip the carrier has to get the number he is looking for or he’s not going to stay in business.
Ballantyne: I haven’t heard much in the last few months from my members about the currency issue. Obviously the one surcharge that sticks in everyone’s throat is the fuel surcharge, but when you have elements in your cost base that are highly volatile, they have to be addressed somehow or other. Ideally, from the shipper’s perspective, you get quoted a rate and it covers all of the carrier’s costs. When I talk to our members I’m told they don’t like surcharges but they do understand about high volatility and that the carrier has to be compensated. I guess surcharges are a fact of life.
MT:The next issue I want to address is technology. Obviously, in tougher economic times, like the ones we appear to be heading into, the more efficient your operations are, either as a carrier or a shipper, the better. I want to explore what role technology can play in creating a more efficient operation. If I can start with you Scott, I know Yanke spends a heck of a lot of money on its technology platform.
Johnston: I think there are two reasons why one needs to. North America needs to become more competitive in a global environment to bring manufacturing and distribution to our continent. The other reason is the shortage of manpower, not only for professional transport operators but in all positions in transportation. You are going to have to deploy and rely on technology to more efficiently run your operation and have less of a reliance on some of the manual processes we currently undertake. The challenge is that when we talk about fuel, from both an availability and price standpoint, and then US and Canadian dollar currency differentials and hedging and futures and shifts that take place in such short time frames, it’s pretty hard to do an ROI on any technological investment over 5 years. Quite frankly, I don’t know if you can plan beyond a year or even 90 days. When you look at your fleet size now and what your footprint is going to be 24 months from now or 4 years from now and you’re trying to purchase equipment on an operating lease and amortize the expense over 4 or 5 years, how can one be so confident that by the end of that time their business will look like it does today?
MT: Doug, do you agree with that? Is the volatility of the current situation making it more difficult to consider technology investments?
Munro: I think it is, especially carriers that are doing transborder. They are struggling right now and they may hesitate to spend money on technology initiatives but there is certainly a movement that is driven by the market in terms of customers wanting online proof of delivery, track and trace, etc. Efficiencies that are gained from having those are pushing that irrespective of how we are doing as carriers. Personally I think we have to continue with those initiatives.
MT: Let’s assume we have a nice and easy to read market place with little volatility. As a carrier, which technologies make the most sense in terms of making for a more efficient, better run company?
Munro: We’ve been putting in some new operating software to be more efficient in dispatch. We’ve also been doing some testing on an RFID base for LTL freight through our crossdocks. There are a lot of efficiency and tracking issues that are overcome by that technology and make it cost-effective to implement, although we are just at the beginning. LTL carriers are having to become like couriers in terms of having track and trace and other functionalities online.
DiTecco:The one thing we haven’t been able to do is convince customers to do what they do with couriers and that’s fill in everything, send it electronically and save all the time and effort associated with paper processes. That’s one of the areas that certainly can and should be improved. Enter the information once. Most of us right now are having to enter it 2 or 3 times and so there is greater potential for error. I know entering such information in-truck has been around a long time for long haul carriers but if short haul LTL carriers can start the billing process when we are picking up the freight it would certainly help us be more efficient. Also, with all the onboard, in-truck information coming back to either your driver trainer or dispatcher, you have more control over how you are running equipment on the road. We’ve trained our drivers to behave in certain ways but with the technology we know that it’s happening and there are fuel savings and safety benefits we can tap into.
Smith: I had a major customer a few years ago say that moving the freight is a given, but how do you move the information? That’s really what we are talking about -what’s the most efficient, streamlined way to move information? That ties you in with your customer and addresses the expectations they are looking for. It also somewhat tiers the market place.
MT: Larry, when you are looking at carriers to determine which ones to use and considering their technology capabilities in the process, which technologies do you want your carriers to have invested in?
Jensen: The one thing we would all like to see is more environmentally green tractors but I can understand now may not be the time to do that. We need better times to go down that road. From a technology standpoint, the EDI tool focus on transferring information from the shipper to the carrier makes so much sense from an accuracy standpoint and a cost standpoint. It’s something we have not pushed historically but something that should be in the forefront. On the other end, I do feel that the LTL carriers are behind in terms of live capture of PODs. That’s an area where they should develop their technology capabilities because I’m dealing with carriers that have a pool of 70 customer service reps taking phone calls and tracking and tracing shipments and relaying information for standard, easy-going PODs. The more access that the carrier can give to live POD statuses, the smaller pool of customer service reps they’ll need and they can work on pushing freight through the system, not just turning over a valid POD from a month ago.
From the founding Sponsor
Tracking, offers integrated onboard computing technology and value-add wireless data solutions for the Canadian transportation, mobile workforce and logistics industries. For over 17 years Shaw Tracking has been focused on providing scalable over-the road fleet management business solutions for organizations of all sizes. With over 700 customers and 40,000 vehicles Shaw Tracking has established economic payback and proven results.
Shaw Tracking continues to support the transportation industry and provide technology solutions to meet the evolving needs of carriers. Acting as Founding Sponsor of the annual “Shipper-Carrier Issues Roundtable” was a great way for Shaw Tracking to be able to support the dialogue among all aspects of the supply chain and the challenges industry stakeholders are dealing with. Shaw Tracking anticipates the upcoming year to be a year of technology solutions being adopted to solve industry challenges.