MT:The economic outlook is improving as we look towards the second half of 2011 and into 2012. What are you most excited about as you look ahead?
McCarron: I think I’m excited by a couple of things. First and foremost, the market has seemed to correct itself, and what I mean by that is that there were carriers being kept in business by creditors who wouldn’t pull the plug. I think the creditors are starting to pull the plug now. People that weren’t paying their bills to the OEMs are no longer in business which is good for the supply and demand. I think that right now, from a carrier perspective, the market is very unstable. I am excited because it’s a lot more fun having 10 extra loads a day than 10 extra trucks a day. I don’t think we’re in utopia yet from a balance standpoint, but I think certainly the free market economy, which hasn’t been allowed to play out because of the creditors, is starting to, and I think that bodes well for shippers and for carriers.
Arseneau: Six months ago there wasn’t a lot from my perspective for us to be excited about. Things have changed quickly in the last couple of months, and one of the things that I’m excited about going forward in late 2011 and 2012 is rates increasing. I know that some people in the room might not agree with that, but I think that going forward it is something that is going to take place. It is a necessity in our industry, and it is something that hasn’t happened for a number of years; we are looking forward to having some of that pressure relieved from a carrier perspective. The other thing that I’m looking forward to is the technology and the developments that are going to come through. Technology is developing at warp speed, and I think that there are a lot of great things that are going to take place.
MT: One of the things that we saw during the recession is an increasing number of shippers considering outsourcing their supply chain functions as a way to reduce costs and to improve efficiencies. Is this a trend that you see continuing during the recovery?
Raynor: I think that we’re going to see that continue and grow even more. I think that, as we see things like capacity tightening up and fuel going up, shippers are always going to be looking for a way to insulate themselves and protect themselves from increasing costs. Doing that is sometimes through outsourcing or through new ideas, be it inbound freight management, on-site personnel, taking in new ideas from the shipper community to save themselves costs.
MT:If we are going to be introducing more situations and a new player – a 3PL – into the mix, how do you see that affecting transportation strategies, and how do you see it affecting the shipper-carrier relationship that still has to exist?
Raynor: I think there are all sorts of new models out there as we talk about 4PLs, and God knows there are going to be 5PLs soon enough. Things like shipper-agent agreements and stuff like that that allow the carriers to continue holding contracts with customers but just be managed through a 3PL with the use of technology and things like that. It can allow smaller carriers access to larger customers through using technology.
MT:During the recession we saw some real issues with a considerable amount of excess capacity; some real downward pressure on rates which obviously hurt carriers’ bottom lines. Now we’re into the recovery session but we’re faced with high fuel costs and likely higher staffing costs. Is the combination of these factors forcing some real structural change within the industry? And what kind of industry do you except will emerge from this? Michelle, if we can start with you.
Arseneau: I like to think that we will emerge stronger and a little more unified as an industry. Definitely we have issues that are going to affect the structure of the trucking industry. The driver shortage is huge, and as we start to realize that a little bit more – I think in 2007 we started to see the tip of the iceberg, but the recession hampered that – within the next 6-12 months we are really going to see the impact that the driver shortage will have on our industry and that is going to drive the pricing up. We need to pay our drivers more in order to attract more drivers to the industry. If we do that then I think shippers are going to be looking at their road pricing versus other modes, and maybe look at other options as opposed to using road services. It makes you wonder whether the traditional long-haul truckers days are numbered; the quality of life is an issue. No one really wants their child to grow up and be a truck driver and it is a reality, and a difficult life to have. If we are not going to be able to fill those positions and those jobs going forward, something structurally has to change.
McCarron: I think what we are going to find is a new found cooperation between shippers and carriers. I really believe that. Back in the good old days we just ran out and bought equipment – the money was there and OEMs were throwing millions and millions of dollars around for people to buy trucks. We created this economic 101 that did not work in our favour, and we are to blame for that. I think what is going to happen is that customers are starting to realize that to find sustainable, long-term solutions you have to work closer with the carriers. I really believe that it is going to bring a whole new level of respect and a whole new long-term type of partnership that we need because that is the only way that I am going to run out and buy trucks now. The days of throwing trailers somewhere and saying “let’s try this for a month” are gone. Look at the hoops that you have to go through to purchase a $20,000 photocopier; you have to put a mortgage on your house to guarantee it, but not in the trucking business. I think that, on top of what Michelle said, it is going to really bring a new found level of cooperation because it is the only way we are going to survive together. I don’t think fuel is a massive problem right now because I think most shippers are actually very good at paying it. Where the fuel becomes a problem is when it takes freight off the trucks because people don’t buy the TVs, telephones and boat motors, and that is the biggest problem. I think as an industry we have to get smart with the fuel. To have surcharges that amount to 35% of the bill that are unfounded and not based on customers. Let’s base the contracts on today’s rates, and let’s work out mechanisms that deal with the fuel. .
MT:Chris, what we are hearing from our carrier panellists is a focus on redefining the shipper-carrier relationship, and at looking at long-term partnerships. In the last couple of years shippers seem to have re-evaluated the price versus quality equation, and placed heavy emphasis on low-cost solutions, in part because their own businesses were financially stressed. From the shipper customers that you have talked to, do you seem them maintaining that focus going forward, or is there a different focus for them?
Raynor: I think the cost equation in transportation is evergreen. It is always going to be here. There is no doubt about that. I think that one of the aspects that we have as a 3PL, when we put account managers into place, is employees who learn the expectations of the customer and what they are doing and then go out and get those unique solutions for them. As an intermediary, that is sort of a competitive advantage that we can offer as opposed to straight trucking in that sense but you always need both. I don’t think that the open market is going to change; it is always going to be there. Shippers are always going to look for a low-cost opportunity, and when capacity tightens up, that is the first place they are going to look to get a better deal. Is it the right solution? No, probably not. I think when people try to time the market to do their RFQs and whatnot, it never works out for them in general. There are all sorts of ways that they can do it, but I don’t think the spot market is going to go away.
MT: I want to stay on the spot market for just a second because that is the one area that still confuses me. What I don’t get is that now that we are into the recovery situation and are hearing about shortage of capacity and that you should lock in your carriers to make sure you are going to have the capacity that you want, the spot market continues to grow. Why? It seems to be in reverse of what should be happening.
McCarron: I’ve always sensed that people who do that, the only way that you can really justify it is to bring new carriers in and try them. The problem now with the spot market is that I don’t think anyone in this room gives their best prices to people that call in off the street. It is not the way to get your best prices. You get your best prices through committed relationships. I commit the business, you provide the service and I will give you the price. Frankly it is a business strategy from companies that don’t understand transportation, and a lot of people who are in that role, the chaos becomes their friend because it justifies their existence. We are at the point now where I see rate requests or bids sent to out 25, 30, 40 or 50 carriers. We don’t respond anymore because it is a very dangerous way to do business.
Arseneau: I agree with Mike completely. There is a cost associated with that. The amount of e-mails that are sent on any given day to hundreds, literally, in one e-mail, of carriers. I don’t know who responds to these. When times are difficult, as they have been for the past few years, there have been a large number of carriers that have responded because they were desperate and they needed to do it. I think going forward there are going to be a lot fewer responses to those e-mails. When companies are auctioning off cart loads and skids on a regular daily basis of every single order as opposed to working with a committed carrier, it makes you question the strategy and the cost that they are undertaking in going through that exercise. When you look at shipper inefficiencies, that is something that should be taken into consideration. Someone is getting paid x amount of dollars to sit here and fire off e-mails all day auctioning off their LTL freight. There is a cost associated to doing that even though they may be securing the best spot market rate at the time to move that freight. At the end of the day, is it a wash, and how are they positioning themselves for the future?
MT:Mike, I want to go back to you on that because I know from the first column that you’re writing in our publication, Fleet Executive, that is what you talk about. When you are starting to see these RFQs and you’ve got a whole bunch of people asked to respond, you aren’t even taking part in that.
McCarron: Just to put it in perspective, I have been doing bids for 25 years in this business. I have never won a bid in my life. I was going through my junk mail and I found about 4 bids in there; they had been blocked by our spam because they’d been sent to so many people. The first one I pulled had been sent to 173 carriers. I thought, “I’m not doing this, I don’t have the time”. The reason being is because I really believe that, and no disrespect to people who do bids because a professionally well thought out bid with good information is a wealth of information, at the end of the day, the shippers control the pricing (not as much as we do) by how they work with us to eliminate cost drivers. The price is only going to get to a point and then it gets dangerous. You really have to work together and play to each other’s strengths, understand each other’s business and drive costs out. Things like consolidating shipments, payment terms, technology, days of the week; anything that can be done to eliminate costs can be passed on. It is impossible to do that with a bid. In this particular situation, and this was a Fortune 500 company that shall remain nameless, I sent them the bid saying “I am not responding to this bid and this is why”, and I got business out of it. I got a meeting with the local plant manager, she gave me a whole lot of information, I went back and put some numbers on paper, and I found out Monday that I got 7 lanes, and that is the first time that I ever got a bid. It isn’t that I dislike bids, I just really think that it’s hard to do things when you can’t put your best foot forward. You can do that when a bid is a starting process, but you can’t do that when the bid is the ending process. I get more calls now from people saying “these people bid on the freight 6 months ago, come and look at it now”.