More tough issues, more honest Answers

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Thanks to conflicting cost pressures and their position on opposite sides of the bargaining table, buyers of transportation services can often have distinctly different points of view from those providing those services.

Yet a variety of challenges faced by both carriers and shippers today require closer, more sophisticated relationships. Is consensus on major issues possible? That’s what we wanted to find out when we brought prominent shippers and motor carriers together to discuss key transportation issues in our first annual Shipper-Carrier Issues Roundtable.

The result was a discussion noted by participants’ frankness and ability to cut to the heart of issues, their willingness to provide honest insights – good and bad – and surprising unanimity on what’s required to advance transportation management and efficiency in this country.

In Part I of our Issues Roundtable our panelists spoke about their economic outlook for 2007 and the related issues of rate trends and capacity. They also took a frank look at efficiency and infrastructure challenges. In the conclusion of our series, they share their insights on technological integration, consolidation, fuel surcharges, and the environment. A full transcript of the discussion is available within the KNOWLEDGE CENTRES module on Watch also for video clip highlights from the roundtable.

This roundtable would not have been possible without the support 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 reality. These individuals were specifically chosen because of the high-esteem with which they are held within the transportation industry and their honest and thoughtful contributions certainly showed why.

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.” On a personal note, if I have learned anything in the last 17 years that I have spent reporting on this industry it’s this: Transportation matters. And transportation management is at its best when shippers and carriers can come to the table as equal partners to discuss and jointly resolve issues of importance. We consider it our mandate to foster dialogue between buyers and providers of transportation services and this first annual Shipper-Carrier Issues Roundtable is a step towards that goal. And, of course, we welcome your feedback on the issues discussed and the positions taken.

Lou Smyrlis, Moderator & Editorial Director

MT: Technology can play a role in making for more efficient freight moves from both the shipper and carrier perspective. Recent research from Aberdeen Group, for example, shows that having access to real-time information really does make a difference. Companies that track more than 80% of their domestic shipments are twice as likely as their peers to have an on-time delivery rate of 95% or better. Yet a study just released by Industry Canada comparing logistics-related Key Performance Indicators for Canadian and US firms shows that more than half of Canadian firms still have no supply chain management solutions in place and do not plan to implement a solution shortly. Are we missing the boat when it comes to leveraging technology investments?

McKenna: I do believe the industry is missing the boat to a certain degree, especially shippers that are sourcing globally. Everybody has technology that supports their operations and it works fairly well. But take a look at a global shipper that has to go across the sea to source their products and does so with multiple suppliers. Generally you could have as many as 10-12 different points in your supply chain and they are all operated by independent service providers with technology that helps them do what they need to do but the systems don’t talk to each other.

MT: Dan you were among the first to invest in mobile communications so I know you believe in the value of technology, but what we are talking about here is evolving beyond technology that’s good within a company to technology that can be integrated to provide visibility across the entire supply chain. That’s quite the challenge, is it not?

Einwechter: We have become quite technologically advanced but it just drives me nuts every time you bid on freight and the client says we want to have this, this and this and then when you start to give it to them they don’t have the systems to read it and ask you to populate the reports manually because they don’t have the people to do it. We’ve spent a lot of money training people on ACE yet there are many shippers that don’t understand the program, expect us to fulfill the ACE program requirements for them, and don’t want to pay the fee for the service. There is a major disconnect here. Information is power and power equals money. There is a chance to use technology, to integrate, to become better. They have the chance to use this information and the power that it brings to make money and a lot of shippers just don’t.

Gagnon: The trucking industry has spent a lot of money implementing technology; it’s hard to believe how much we’ve spent. The cost and all the work, however, is dumped on the carrier. Shippers expect it all at the lowest rate possible. We implement customized reports, EDI, tracking, etc. which costs the carrier a lot of time and money. Technology has grown and will continue to grow, but shippers need to realize they should pay part of the cost.

Ballantyne: There are information silos but I wonder if the security systems the various government agencies are putting in place will force all the players in the supply chain to get out of their silos. Obviously carriers are having trouble with some shippers but maybe all this legislation will force carriers and shippers to come together on these issues. Perhaps there is a positive in all the security programs in that it helps to remove us from all the silos that we operate in and move us toward a common standard. Does that seem feasible?

Penner: I think there is a chance that will happen, if they don’t change the rules five more times. Our problem is timing more than anything. There’s no chance of any of these things working if the rules aren’t the same for the importers and the exporters as they are for the carriers and at the same time. We have invested millions in these changes and policies and there’s no hope of recouping the investment if no one else has made the same investment and so feels they have the same stake. Governments assume it’s our mandate because we are the ones who show up at the border and we have to pay the bill. Government has the best form of control there is: the taxman. Nothing crosses the border without a tax receipt somewhere. For them to say they can’t go back to the importer or exporter to ensure their systems know what’s in the box doesn’t make sense. Our systems can tell you we have 500 boxes in the trailer but what’s in those boxes? How secure is this system? Who put the seal on it? How did you make sure it hasn’t been tampered with? These questions should be a big concern because tampering is not likely going to happen when the box is on the truck; it’s going to happen somewhere else.

MT: Pricing has been a particular concern in recent years. The high cost of fuel – and the subsequent fuel surcharge passed on to shippers – has been a significant contributor to those costs. Most shippers accept the need for a fuel surcharge. Is the current fuel surcharge system the most fair and efficient for both sides or is it wise to consider alternatives?

Gagnon: This is not a moneymaking scheme. It covers the cost of the base we started from about 1999. It’s not a perfect system b
ut it would be too hard to get out of it across the industry. There are some months where you make more money off the fuel surcharge, for example during the summer because your miles per gallon are better. Some months it is costing us more. Right now we have lost 1 MPG because of the winter. Empty miles which are not paid for are also a factor. So there are a lot of things to take into consideration and we do have to recover our fuel cost increases. It may not be a perfect system month to month but it all works out in the end.

MT: Bob I know the CITA has looked at different alternatives, although it has not come out in favor of any particular alternative.

Ballantyne: I think there are a lot of differences of opinion among the shipper community but there are some shippers who think that the idea of a fuel surcharge as a percentage of the freight rate isn’t necessarily the best way to do it and that a mileage-based or tonne-mile surcharge may be better. But I think to make a change that satisfies everybody will take a fair amount of research and analysis. I’m not sure if the current approach is the best way but maybe it’s the best of a bunch of imperfect ways.

McKenna: From a private carrier perspective we are well aware of the impact that fuel pricing has on the cost of our operations. I think that shippers should take the time to educate themselves on what exactly that cost represents for their carriers. It will probably be the second most expensive component in the quote that they receive and represents anywhere from 20% to 30% of their freight costs. And if that cost goes up 50% then you know that you need a 10% to 15% increase for the carrier to remain whole. It shouldn’t be complicated but I think what happens in some cases is that you start getting that fuel surcharge on the freight rate, which includes a whole bunch of other accessorials and not just the base rate, and then you are overpaying your fuel surcharge. Some carriers look at the freight surcharge as a revenue line rather than a cost recovery line. The fuel surcharge formula works and if the shipper does his homework he will negotiate the cost of fuel increase to the base rate as soon as possible. If you are dealing with a surcharge outside your base rate, you have a cost not subject to your negotiation strength and in all likelihood, you are subsidizing your competitors.

MT: Shippers are increasingly demanding more sophisticated offerings from their carriers, both in terms of geographic reach and types of services offered. Many motor carriers have responded to the challenge by growing through mergers and acquisitions. Much of the consolidation has been driven through companies set up as income trust funds. In light of Ottawa’s move to discourage corporations from converting to income trusts, can we expect to see a significant decline in industry consolidation in the future?

Einwechter: Do I think the value of some companies might have been altered somewhat? I think the market is buoyant and it will come back. I think the longer-term perspective is we are going to continue to see consolidation because we have a lot of forces at work. Trucking owners have been pretty resilient. But we’ve had 9/11 and all the subsequent events that occurred after that and the concerns in the marketplace and the dollar rising and the insurance issues, and fuel and two rounds of engine technology and one more coming in 2010. And while this has been going on the owners have been getting older. I think people are saying I’m getting older, the challenges are significant and I think just by the nature of the ownership and the challenges it will continue to consolidate.

MT: Do you see the non-trusts having more power to be active acquirers?

Einwechter: Sure, the market has changed because of that. It’s a more level playing field for everyone. The income trusts by their nature were forced to distribute their cash and not reinvest in growth. We’ll see how they choose to go forward, whether they want to stay as income trusts or change their structures. I think it’s a maybe a good thing for the Canadian economy because there will be impetus to reinvest those funds for growth.

MT: Is continued consolidation good for shippers?

Ballantyne: It is a bit of a balancing act. With 10,000 trucking companies in Canada I think we can stand to see a lot of consolidation and still keep a lot of competition. I think some degree of consolidation is good for both the trucking industry and the shipping industry. The ability to invest in new technology and engines has to be addressed and all of the environmental issues too.

MT: Speaking of environmental issues, that brings us to our next question. The need for environmentally-sustainable transportation practices is an issue gathering momentum with both industry and government. Is the current government doing enough to give both carriers and shippers the incentive to invest in energy-saving technology? Many of the existing programs were either placed on hold or cancelled when the Conservatives took power.

Ballantyne: Probably they are not doing enough. Because it is in the interest of society generally, there is a case to be made for saying that the government should take financial action to encourage people to invest in such technology. It would seem to me the most obvious way to do that is through the tax system, providing tax benefits for making such investments. The speed limiter initiative from the Canadian Trucking Alliance I think is a great initiative.

Einwechter: Normally we follow the US lead on many issues but in this case we were ahead of the US in adopting this as a policy recommendation. I’ve had some pretty strongly worded e-mails and letters on this issue saying why don’t the companies that want this just enforce it within their own operations? The reality is that owner/operators, as much as you may try to police their speeding, can slip through your net. So as well intentioned as we may be, speeding is still going on. We need to have a broader based mandate to manage speed limiting. I have a significant problem with the Private Motor Truck Council’s position opposing speed limiting. I can’t believe they took that position. No matter how much we tout our safety record and environmental record as an industry, the reality is that the motoring public is scared of big trucks and this is a proper gesture in that regard. It makes good safety sense, good environmental sense, and good business sense.

MT: Are we perhaps pandering to fears that drivers will be turned off when we don’t support the speed limiting proposal?

Tanguay: Absolutely. For me, the fear that some of their drivers may quit and go to their competitors is the only argument anyone can have against speed limiters. But it’s ludicrous because if we put the speed limiters in place then we are all bound by the same rule. Our trucks are governed and we lost drivers to smaller fleets when we cracked down on hours of service because they were going to drive fancier trucks at 75 mph. I tried to explain to them that what comes with that kind of mentality is dispatch pushing you when you’re tired, beat drivers, and unsafe driving practices. I believe the people not in favour of speed limiters are afraid they are going to lose their drivers. Over the past several years as we’ve grown our fleet and tried to implement best practices. I’ve had the opportunity to learn from some of the best and I remember one fleet general manager telling me that owner/operators need discipline. Your success in keeping owner/operators is running a disciplined workforce. If you don’t maintain discipline you will never please them and they will continue to jump from carrier to carrier.

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