Rise above it all

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We can’t say we weren’t warned. Most economists forecasted a slow and volatile recovery through 2010 and that’s exactly what we’re getting now that the initial economic boom of the first quarter has fizzled. The result is even more stress on an industry that has been battered more than most. Nerves appear as frayed as profit margins. But if trucking is anything, it is resilient.

How are leading carrier executives and their customers preparing for the turnaround in 2011? How will their actions make the industry different? Find out as shippers and carriers debate the pressing issues, challenges and opportunities for the year ahead.

Our roundtable participants had a great deal to say, so once again we will share their insights with you over the course of the next two issues. In Part I of our Issues Roundtable, our panelists look ahead to next year and discuss how trucking and shipper-carrier relationships will be transformed. Watch also for video clips of their comments in special installments of our award-winning Web TV show Transportation Matters, available on www.trucknews.com and www.ctl.ca.

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 transportation equation. 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 an important 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.

Lou Smyrlis, Editorial Director MT: Thank you all for joining us for our annual Shipper-Carrier Issues Roundtable. The first question I would like to ask is probably among the most difficult that will need to be answered today because it requires looking ahead into the economy for next year, which I know at the moment is a cloudy perspective at best. When you look towards 2011, from either a shipper or carrier perspective, what do you see?

Decisions Roundtable

Seymour: I think we will continue to see slow and modest recovery. At least I’m hopeful that is the case. The threat of a double dip recession I’m hoping will not prove to be the case.

Sneyd: The back end of this year has not been as strong as we had hoped. The economy has not come back the way we were hoping it would come back. I’m concerned that the first quarter of 2011 and maybe even the first half will bring a pretty tough economy here in Canada. Things have to get better in the US and we are not seeing that. In fact, the US is going to suffer some more in the first quarter, I believe. Until that gets kick started, we are going to have a tough time here. So I’m not optimistic the first three to six months are going to be strong in 2011.

Gagnon: When you look at the reports from retailers over the last three or four months, there is no growth in retail. Every major retailer has come up with flat numbers and I don’t see the upswing in the last quarter of the year. We are busy, but if everyone was to count how many trucks are not in use right now, we are not busy.

Sneyd: Capacity is tough right now, so you have a smaller fleet that is keeping busy. But if you had a normal-size fleet like you had years ago, you would be in trouble. We really need a lot of momentum in the back end of this year to carry through to next year and we just don’t have that.

MT: Let’s hear from the folks who are actually responsible for generating some of the movement in the economy. Ray, your company services some of the traditional sectors in the economy. How do things look from your end?

Krizman: We service the steel market, producing building products and we are into agriculture as well with grain bins. We are seeing basically the same story. Budgets are coming out this time of year and we are seeing forecasts that are quite flat for 2011 compared to 2010. We were hoping there would be an increase, but I don’t think that’s going to happen. It’s going to stay level and we will continue to build on that. If there is any increase, it will be moderate at best.

MT: Well, they say to every cloud there is a silver lining. Let’s see if we can find that. When you look ahead to 2011, is there anything you are excited about?

Arseneau: I could be excited about when the fog will actually clear, but I don’t know if that is going to happen in the first or second quarter of 2011. Consumer confidence is not really where it needs to be in order to start to see a climb in the economy. I would like to believe that will happen later in 2011, but I think it’s still going to be a tough year.

Warren: I agree with everything that has been said about the economy. It’s funny because what we are experiencing as an LTL carrier, shipment- wise, is that our levels with existing customers whom we have held for the past several years are back to 2007-2008 levels. Right now, we are experiencing growth because of new business gained over the last few years and the stabilization of our base. We are very excited about 2011-2012. As an LTL carrier, we are moving in the right direction, although we are a little concerned about the driver shortage coming up again towards the end of 2011 and 2012. It’s something we are keeping an eye on.

Raynor: I’m getting excited about seeing supply chain improvements. We are seeing companies place a real focus on their supply chains, and not just the transportation portion. Companies got a shock and had to look at what they are doing internally, not just what they are paying for freight. I don’t think rates can go much lower, so they are looking at other improvements, such as increased use of technology and keeping inventories low. They are looking at these things and reporting up to the C-Level, as opposed to keeping it in the back as just an expense.

change to Canada’s trucking industry? Will the survivors think differently and strategize differently than in the past?

Sneyd: Smart carriers have taken advantage of the crisis and we’ve learned and adjusted to the different rates and volumes. We’ve done some right-sizing to deal with the situation at hand and, more importantly, to understand if two or three years going forward we are hit with the same situation, we are going to be in a better position because of the changes we are making now to deal with any other downturns in the business. If you haven’t managed your business to the crisis, then I think you’ve made a mistake. As things get better, we will be a little more cautious in the way we make changes. I’m not suggesting you always look in the rearview mirror, but you have to understand where you’ve been and what you have gone through.

MT: Eric, the overcapacity situation has either caused or exacerbated a lot of the difficulties, particularly on the LTL side. Do you see some different strategies coming out of this from LTL carriers?

Warren: Definitely. I think a lot of carriers learned that you can’t be everything to everybody. They diversified to a point
where they were in areas of business that maybe they were not experts in, but there was some business to be had and they were looking for revenue. I think it has taught a lot of carriers to look inward and see what their core business really is. Someone needs to have an eye on keeping sales and operations on track headed toward the right path and not too far away from that path.

MT: Serge, you have been in this business a long time. We’ve heard people before say, “We’ve learned,” and, “It won’t happen again.” Has the industry learned its lessons this time or are we not really seeing structural change?

Gagnon: I’m not sure we have learned our lesson yet, because every day, you hear things happening in the market with bids and you really question if people have really learned. But depending on what market you are in, things can be different. If you are in the retail business, you haven’t been hurt much. But if you are in any kind of manufacturing, be it pulp and paper or automotive or home building, you have suffered a lot. We all have about 15% less truck capacity now in TL and we are still short of drivers. That’s the next thing we have to find solutions for. And there is no issue at the border. Before the recession, we were talking about all the time we were spending at the border. We haven’t heard one driver complaint about that of late.

MT: Things have also been difficult on the shipper side. Shippers have gone through severe cuts to their transportation budgets, and have had to reevaluate the price vs. quality consideration. Have we witnessed a long-term change to transportation strategies from the shipper point of view as well?

Krizman: Most definitely; change is inevitable. The relationship we have between shippers and carriers has to change and improve. I have been in the logistics business 30 years myself, and when I started, there was that relationship. I had mentors, whom I loved because of that. The honour that was there seems to be missing today. What’s changing? I think shippers are looking at carriers and probably rooting changes. I think there is an amazing amount of product that moves west to east and we are looking, wherever possible, to source product from a more local place, looking for shorter lanes. This will actually help trucking. We are going to look at our lead times and look at our inventory costs and make that judgement call. I think a lot of companies have made the move from intermodal to box car for the savings you get from that.

MT: There has been a growing trend towards outsourcing of supply chain functions to improve expertise and gain efficiencies. Do you see this trend continuing?

Raynor: I think shippers are reluctant to bring on headcount. We have seen a lot of companies which don’t want to take on the expense, don’t want to take on the technology. They understand it’s not a core competency for them and that’s why they want to outsource. If they can have a 3PL they can work in collaboration with and it has the resources and the people and the technology, it makes sense.

Seymour: At the end of the day, a solid partnership will be based on trust and respect. As long as a carrier and a 3PL have a mutual trust and respect for each other, I don’t think it really matters if the relationship is there or if it exists directly with the customer. The situation, as it exists right now, is that there has been so much effort put toward reducing costs and playing games around driving costs out of the system through aggressive bids and tenders and gamesmanship to take advantage of the situation that it has somewhat fractured or challenged that trust and respect scenario. I have every reason to believe that it can work and will work, and to Chris’s point, I think it makes great sense for a company to outsource needs they realize are not core competencies. But it needs to be a relationship that is not commoditized, but is sincere and collaborative. The reality is there have been some short-term delays put upon our industry that are going to have to be dealt with, and it’s important for us as carriers to make our customers and 3PLs realize how we need to deal with these things aggressively or we are going to put the movement of product to market at risk. It would be a sad day when that happens and hopefully we can deal with that before it does.

MT: Michelle, do you agree the shipper-carrier relationship has been somewhat comprised the last couple of years due to the focus on cost reduction? What can we do to improve that relationship in the years ahead?

Arseneau: I would say the relationship definitely has been compromised. There have been shippers who have taken advantage of the situation in our industry. What can be done to improve the relationship? Definitely improved communication between shippers and carriers on a regular basis. Shippers aligned with the proper carriers can do more with them; they can see what can be done to grow the relationship. There are carriers who can do a little bit more and by working together and strategizing together on long-term goals and making sure that they are aligned, they can do more.

MT: We’ve talked a lot about this emphasis on cost and how it has impacted relationships. Is it fair to say though that when carriers look in the mirror, they are seeing who is really causing the problem? We have a lot of carriers who in order to stay alive and make that payroll for one more week are dropping their rates to get business.

Gagnon: It’s all based on strategy. For example, Western carriers come to Ontario or Quebec and then want to go to the US and back to the West. The Ontario or Quebec carriers going to the US want to come back to Ontario or Quebec. If the rates from the US to Western Canada are paying, let’s say, $3 per mile, they will compromise the rates from Ontario to the US, because they are getting paid good revenue from the US to Western Canada, but they are hurting the segment of the industry that is running from Ontario to the US.

Sneyd: When you run a trucking company, there are a lot of components that you have to consider when you are setting pricing. To Serge’s point, you end up in a certain spot and you’ve got a good paying load that puts you in that spot and you might be a little more flexible in your pricing to get you out of that spot. That is going to happen. But are we our own worst enemy? Absolutely. Our industry, over the years, has demonstrated that sometimes we take careful aim to shoot ourselves in the foot. Have we learned as a result of this last bout of difficulty we have gone through? I would hope so. What is going to add a different dimension to this is that there is not going to be the capacity going forward. You can put all the trucks on the road that you want, but if there is nobody behind the wheel, it doesn’t do any good. It’s the biggest problem this industry has and I don’t know how we are going to overcome it. But we have to do something to get capacity back in check with what volumes are going to be. Customers going to 3PLs has been happening for years. We have all lost customers to 3PLs and then you have to make the decision whether to follow the freight. At the end of the day, it doesn’t matter whom the shipper entrusts the freight to; if there is no driver to pull the freight, it’s not going to happen.

MT: One of the criticisms that has been made of the industry is that it has not invested to a sufficient degree in the kind of technology that produces the analytics necessary to ensure things are run efficiently and priced appropriately. Is that a fair assessment?

Warren: The technology exists, but there is constant change we have to deal with and the ability to get all the information and use it t
o make a decision that is not based on old information is challenging. You have to be able to expand and contract very quickly -by month, by week, by day of the week. It’s like a balloon. Friday may be a big day for pick-ups, Monday is not; there are certain months out of the year that are bigger than others. In our case, as an LTL carrier, we are looking for top freight, base freight, some dense freight, some bulkier freight, this freight inbound, that freight outbound -it’s a constant change for us. It’s never just an easy line where you can study the data and say this is where we need to go.

Gagnon: We do have the technology, but one thing we face in the bidding process is shippers wanting to go with the cheapest carrier from north to south and then choosing the cheapest carrier from south to north. You can have all the technology, but you cannot beat that.

Seymour: That’s not working together. That’s clear evidence of making decisions not based on efficiencies or logical opportunities to move freight seamlessly or effortlessly. It’s those sorts of discussions that need to be made face-to-face, not through some tender on a PDF file that simply crunches best price. That’s what has stressed the trust in our business. I’m not blaming shippers for what has gone on; it has been a mutual disrespect for the whole supply chain throughout the industry. We need to sit down and figure out the best way, not necessarily the lowest price. The price that it takes to get it done will shake out, and if people trust one another, the market will make sure no one is making too much money along the way.

Warren: What I do see a lot of times with shippers trying to get the lowest possible price is ending up with 10 carriers showing up in the yard all at once and the shipper only has five doors and then there are detention and all sorts of other ancillary charges and the total rate is not quite what they thought they had achieved. I’m sure everyone at this table has situations where the driver shows up for a 1 p.m. appointment and can’t leave till 5 p.m. or 6 p.m.

Sneyd: Those decisions being made today are

going to haunt people down the road. At the end of the day, you are going to have so much capacity and you are going to direct it to the customer who has a relationship with you that allows you to work with them. What has been described is not working with a carrier: it’s a decision made on a short-term situation, that’s not going to work going forward.

Gagnon: Our surveys show that, for drivers, it’s not what we pay them that they are dissatisfied about; it’s everything that is happening to the job that they have to perform.

Seymour: One of the things that drivers want that is a big issue for us is predictability in their life. The shipper has the ability to bring predictability to the movement of freight and that translates tenfold to the driver and is the sort of thing we need to work on to bring some stability into our labour force. Shippers can align themselves with a service provider they can count on because of this.

MT: From what I’ve been hearing lately, shippers are not feeling as pinched economically as they were a year or two ago and are aware that capacity will become an issue and so are beginning to focus more once again on their relationships with carriers. Ray, is that what’s happening or is there still a lot of focus on cost reduction?

Krizman: I think we are still caught in the short- term mode, but there are advantages in looking ahead. It’s kind of a guessing game though with the economy and what it’s going to do. It’s a tough thing to do to look ahead. You are playing a gambling game. Contracts are getting shorter all the time.

MT: For a 3PL relationship to work well, obviously, you have to do things right by the shipper, but you also have to keep your carrier partners whole. From your point of view, do you see things changing with more of a focus on long-term relationships or is it like Ray is saying that the focus for shippers remains on the cost side of things?

Raynor: I think shippers are focused on improving their supply chains. There are a lot of smaller companies having trouble doing that because they don’t want to invest in technologies so they don’t have the visibility they need. A lot of customers themselves are driven by their own customers and being predictable is a challenge for them because purchasing may put a back order in and they may not have a clue about it. They may send you from Toronto to Chicago, but a whole different department may have put an order in from Chicago to Toronto and didn’t communicate that. What’s exciting is that we are starting to see purchasing and transportation getting together and starting to collaborate and finding those efficiencies.

MT: If outsourcing is going to remain a growing trend, what impact will that have on the shipper-carrier relationship?

MT: Chris, you spoke of rates not being able to fall any lower and certainly we have seen some very difficult times the last two years. As a result, have we witnessed significant and long-lasting structural

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