Canadian Shipper

TRANSPORTATION
Trucking CEOs speak
frankly about survival
TECHNOLOGY
Kick-starting a
productivity drive
OUTSOURCING
Is the recession creating new
opportunities for 3PLs?
CANADIAN
Transportation
OCTOBER 2009
& Logistics
Published Since 1898
Out of
Box
Thinking
Couriers’ express retail outlet strategy has stuttered.
Can it survive under a better economy?
OCT COVER.indd 1
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CITT09E-PA02-reposition-OUTLINES1
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OCT
CONTENTS 3.5.indd 2
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10:57:48
19/10/09
11:27 AM
AM
:57:48 AM
Features
12 . . . GOOD GAMEPLAN
How a WMS and some reengineering kick-started an
enormous productivity drive at RMP Athletic Locker.
Published Since 1898
16 . . . LET’S GET SURGICAL (AGAIN)
VOLUME 112
ISSUE NO. 10
OCTOBER 2009
A bonus part from our series on finding the biggest, fastest
transportation savings! If you thought last month’s strategies
were tough, these are the toughest going, so get ready.
cover
20 . . . CHANNELING DARWIN
Prominent trucking CEOs speak frankly about the fight
for survival in the industry’s greatest down market.
26 . . . DOWN AND OUTSOURCED
An annual 3PL survey has found that the recession has
created new opportunities for outsourcing. Plus: CEOs
of 3PLs offer economic predictions in a new report.
Out of
Box
Thinking
Departments
4 VIEWPOINT
The secret to successful outsourcing relationships hinges
on dealing with the IT capability gap.
6 IN THE NEWS
The Association of Canadian Port Authorities gets candid about
logistics, China and shortsea shipping at its annual conference;
Ontario carrier Bruce R. Smith files for creditor protection;
Canadian General Freight Index continues its downward slide;
highlights from the 23rd Annual Transportation Conference; and more.
28 INSIDE THE NUMBERS
How many North American trucking companies have declared
bankruptcy thanks to the recession’s impact? Plus: findings from
the 14th Annual Logistics Outsourcing Survey, including measurable
benefits from the use of 3PL services and the budget percentage
logistics shippers are devoting to outsourcing.
30 THE BIGGER PICTURE
Laurie Turnbull outlines the differences in how C-level and
O-level managers perceive supply chain management.
Couriers’ express retail outlet strategy has stuttered.
Can it survive a better economy?. . . . . . . . . . . . . . . . . . . 14
Are you prepared for your
next round of carrier negotiations?
You need to be up on the latest transportation buying trends and benchmarks.
You need our annual Transportation Buying Trends Survey.
• Anticipated shipment volumes by industry • Rate increase averages by mode
• Surcharge increases by mode • Capacity concerns by mode.
All this key information and more can be yours, FREE of charge. Fill out our survey and you
will receive the full results, free of charge. . . and you'll be entered into a special prize draw.
Look for our e-mail survey.
www.ctl.ca
OCT CONTENTS 3.5.indd 3
CONDUCTED IN PARTNERSHIP WITH CITA AND CITT
CT&L OCTOBER 2009
3
19/10/09 11:28 AM
view point
VOLUME 112 ISSUE NO. 10 OCTOBER 2009
Want to know the secret to successful outsourcing relationships?
Deal with the IT capability gap.
T
he depth of the recession and its
disastrous impact on revenues is
forcing shippers to seriously consider if their supply chains are the
most efficient they can be. In our look
at trends in outsourcing this issue, we
report on the findings of the Annual
Third-Party Logistics Study. Not
surprisingly, six in 10 shippers
responding to the international
Lou Smyrlis, MCILT survey agreed that current
conditions are serving as an inWORTH REPEATING
flection point to rethink their
“Technology should
supply chains as well as their
support your business
relationships with third-party
processes, not drive
them. Don’t automate logistics providers.
a bad process.”
Whether you’re a shipper or
a carrier, liquidity is of prime
– Andrew Miller,
president,
importance during tough finanACM Consulting Inc.
cial times, so it’s no surprise that
converting fixed costs to variable costs is a popular strategy right now and one most likely to increase interest in outsourcing. It includes not only
outsourcing more logistics activities to 3PLs, but
also using a SaaS (Software as a Service) model,
a pay-per-use concept, when implementing new
technology. Redesigning supply chain networks
and expanding to new markets are other strategies that would favour increased use of 3PLs and
their special skills in the years to come.
North American shippers already devote, on
average, 47% of their total logistics budget to outsourcing, but if that’s to grow to the 60% levels
found in Europe and Asia, outsourcing providers
will have to deal with their Achilles Heel: the IT
capability gap. As the study’s authors and any supply chain manager on the ball will attest, logistics
and IT are inexorably linked. The data provided
by IT systems have become the lifeblood of supply chain planning and execution processes. IT
that is responsive and tied to strategic objectives is
central to providing the visibility into transportation and warehousing functions that’s necessary
for creating truly efficient supply chains. So it’s
only logical to assume that shippers considering
outsourcing supply chain functions must be impressed not only initially, but regularly by their
3PL’s IT platform.
Yet this year’s version of the annual study has
once again found a considerable gap between shippers’ expectations for 3PL IT capabilities and their
satisfaction with those capabilities. While 88% of
shipper respondents feel that 3PL IT-based ser4
CT&L OCTOBER 2009
vices are important, only 42% of the same users indicate they are satisfied with those capabilities. Just
as revealing is the fact that 81% of 3PL respondents
feel their customers consider IT-based services as
important, yet only 59% feel their customers are
satisfied with these same services. When the existence of an IT capability gap is acknowledged by
both shippers and their 3PL providers (albeit the
gap appears wider from the shipper point of view),
it’s clear this is an issue that requires addressing.
Yet it’s not an issue that will prove easy to address because, as the study points out, considerable
investment in functionally siloed legacy systems
stands in the way. Essentially, the root of the problem is deeply buried with those considerable technology investments made many years ago. Many
3PL providers are still operating legacy ERP and
operational applications that run on mainframes or
mid-range systems. The spate of acquisitions prior
to the recession only added to the complexity.
As a result, 3PLs are spending the lion’s share of
their IT resources keeping it all running, the study
points out, and the difficulty of rationalizing and
modernizing legacy applications means some 3PLs
are maintaining multiple data silos with duplicate
and incorrect data. Lack of internal IT integration
within 3PLs leads the list of shipper respondent
complaints (55%) with 3PL IT. Shippers, too, face
issues with legacy technologies that consume resources and impede integration efforts.
As a result, shippers say these IT challenges,
when working with a 3PL, are keeping them from
attaining the KPIs, alerts and visibility required to
run the adaptive supply chains they desire. On the
other side of the fence, 3PLs say they are frustrated
with their difficulties in getting the data and commitment they need from shippers. Number one
on their wish lists is real-time interfaces to shipper
order management systems (63%), followed by
timely demand forecasts (54%).
Clearly, improvement is needed on both sides
for this issue to be resolved. Yet beyond the investment necessary, trust is an issue. As the study
points out, 3PLs hesitate to devote resources to a
shipper who may not stay (our own research routinely finds the average length of contract is just a
year), while shippers avoid becoming too invested
in one provider. And both fear sharing data will
cost them control.
Seems there is much to work out before IT
can be properly leveraged to achieve the supply
chain efficiencies possible through outsourcing
relationships.
CT&L
@ARTICLECATEGORY:129
EDITORIAL DIRECTOR
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OCT VIEWPOINT 4.indd 4
19/10/09 11:31 AM
ONLINE
What’s on
Blogs
• Dan Goodwill of Dan Goodwill and Associates
opines on how and when this recession will end.
CTL.ca?
• Editorial director Lou Smyrlis makes a case for
taking needless cost and waste out of transportation.
• Laurie Turnbull of the Cole Group digs to discover
how Illinois knocked Michigan out of its traditional spot
as the top state for surface trade with Canada. His take?
Blame the ostriches.
• IT expert Gagan Goraya ponders whether the
Internet has eaten away at company productivity.
Web TV:
Transportation Matters
• CITT president Catherine Viglas and Calyx Transportation Group
president Doug Harrison discuss the highlights of Reposition 2009.
• GROWING YOUR BUSINESS:
Is bigger really better in the current transportation marketplace?
• hIRING hELP:
How do top supply chain professionals stay current with new
hiring trends? Find out as our HR Issues roundtable continues.
• FLEET TALK:
Trucking executives share tips on differentiating yourself from
the competition and discuss the importance of diversity.
You Said It . . .
“An organization should not be afraid to build a
‘profit centre’ with freight charges, whether it’s small
package, truckload, LTL etc. After all, there is a lot
of painstaking work that goes into contract/rules/fuel
charges preparation, along with keen negotiations and
the ability of identifying lanes, tonnage, imbalances and,
of course, the 80/20 of actual tender. But remember if
you are to develop a ‘profit centre’ with freight, the
actual invoice to the customer must read ‘shipping
and handling charges’ not ‘freight charges.’”
David DiSanto of DiSanto and Associates,
commenting on Dan Goodwill’s blog:
Managing Inbound Transportation.
www.ctl.ca
OCT CONTENTS 3.5.indd 5
We now TWEET!
Follow us on Twitter
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ct&l october 2009
5
19/10/09 11:28 AM
in thenews
news
Wake-up calls on logistics,
China and shortsea shipping
By Leo Ryan
The 51st Annual Conference of the Association of Canadian Port Authorities (ACPA)
in Prince Rupert, B.C. was highlighted by
the candid views of speakers on subjects
ranging from logistics and China to unexploited shortsea shipping opportunities.
Canada needs to become more agile and
appreciate that logistics constitutes a fundamental part of production when dealing
with global markets, emphasized David
Fung, chair of Canadian Manufacturers and
Exporters and chief executive of the Vancouver-based ACDEG Group of Companies with partnerships in Europe, Asia and
North America.
“The old idea that I buy from you and
you buy from me is passé,” he said. “Nations
are no longer competing with nations. Instead, one industry supply chain is competing with another industry’s supply chain.”
Fung warned that Canada is losing market share in the US to China, while Canadian productivity is also falling behind
the US.
He observed that the most successful
companies have learned not to compete
with China and India, but to manage and
incorporate them into their global corporate
strategy. For example, the top exporters
from China are not Chinese enterprises, but
Toyota of Japan, US-based GE and USheadquartered Caterpillar.
Looking at Canadian transportation
trends, Fung suggested there was no future
for long distance trucking. Trucks should be
used for the last 200 kilometres of a supply
chain. “We need to use rail and ships.”
Fung said Canada should start establishing simple container transfer terminals and
exploit the potential of the whole Great
Lakes/St. Lawrence system, emulating the
extensive barge movements in Europe and
on the Pearl River in China.
“We are the only continent in the world
that regulates ourselves out of using shortsea shipping,” Fung said, citing developments in Oshawa.
Instead of shipping auto parts directly
from the GM auto plant in Oshawa across
Lake Ontario to the US, the parts are
shipped along the congested Highway 401
6
ct&l october 2009
OCT NEWS P.6-10.indd 6
and enter the US by road.
Fung attacked the US Harbour Maintenance Tax, which charges a levy on shippers
based on the value of goods. Thus, one cannot afford to transport high-value goods
from ports like Oshawa.
Robin Silvester, president and CEO of
Port Metro Vancouver, Canada’s largest
port, declared: “We have witnessed in the
past 15 years extraordinary growth, including the emergence of containers as the preferred means of shipping, and significant
public and private investment in ports.
To manage the future, we can’t be complacent now.”
George Stalk Jr. of the Boston Consulting Group noted that even before the recent
recession, global supply chains were rapidly
approaching capacity with degradation of
performance.
In this context, Stalk said that ports are
elements in increasingly complicated global
supply chains that are facing renewed congestion and capacity challenges. He alluded
to a looming “infrastructure crisis,” pointing
to such trends as loads on roads increasing
by 10 times of capacity.
Rear Admiral Tyrone Pile, Victoriabased Canadian navy commander of Maritime Forces Pacific and Joint Task Force for
the Vancouver 2010 Olympic Games, held
nothing back when evaluating the China
Factor on the world scene.
“China’s maritime expansion has been
phenomenal. The country that controls the
oceans of the world dominates the economy,” Rear Adm. Pile said in reference to the
Chinese naval and freight shipping presence
in the Pacific.
He also referred to China as “the most
important non-Arctic nation in the world”
– indicating that China will soon join other
countries that are conducting research missions in the Arctic.
After listing great, past Canadian infrastructure achievements like the railways,
the Trans Canada Pipeline and the St. Lawrence Seaway, Pile said, “The time is overdue to take the next leap forward as the
gateway to North America.”
For his part, Tim Heney, president and
CEO of the Thunder Bay Port Authority
and newly-elected ACPA chair, said the Association is working closely with governments and other stakeholders to ensure that
Canada’s national port system is prepared to
handle growing trade as the country emerges from recession. “It is clear,” he said, “that
the current economic downturn presents an
opportunity for Canada’s ports to invest
in infrastructure and technology to be
ready when global trade begins trending
upwards.”
Bruce R. Smith files for
creditor protection
Bruce R. Smith has filed for protection
from creditors under the Companies’
Creditors Arrangement Act (CCAA).
The company filed with the Ontario
Superior Court of Justice, which will give it
time to restructure its business affairs.
KPMG is the court-appointed monitor and
Hamilton, Ont.-based law firm Scarfone
Hawkins LLP will assist the carrier in its
restructuring efforts.
Bruce R. Smith has been trucking since
1947 and celebrated its 60th anniversary
two years ago. It operates about 250 tractors and 1,100 trailers out of six locations in
Ontario and one in Montreal, Que.
The company currently employs about
325 people.
“As a result of the severe North American economic recession, and particularly its
impact on the North American automotive/manufacturing sectors, Bruce R.
Smith’s revenues have declined significantly, and the corporation now has more
equipment and equipment carrying costs
than can be supported by its decreased revenue base,” the company acknowledged in
a statement.
“While its revenue base is showing early
signs of recovery and Bruce R. Smith has
taken every possible step to address the necessary restructuring issues outside of formal
legal proceedings, it has determined that it is
in the best interests of its shareholders, employees and creditors to seek protection pursuant to the CCAA in order to restructure to
bring its short- to mid-term cost structure in
line with a lower revenue model.”
The company said its creditors are supportive of the application. Bruce R. Smith
says it’s business as usual while it restructures, as far as its customers are concerned.
It also said it will try to retain as many of its
employees as possible.
www.ctl.ca
19/10/09 11:33 AM
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OCT NEWS P.6-10.indd 7
19/10/09 11:33 AM
in thenews
news
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OCT NEWS P.6-10.indd 8
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The Global Shippers’ Forum (GSF)
wrapped up its annual two-day meeting in
London, UK on Sept. 15, as it continued to
press for other major trading nations to follow the lead of the European Union in
abolishing liner conference exemptions
from anti-trust laws.
The Canadian Industrial Transportation
Association (CITA) joined with shipper
groups from Asia, Africa, Australia, Europe
7” x 4,875”
World shipper group continues
to press for maritime reform
and the US at the GSF annual meeting.
This year’s GSF meeting focused on maritime regulatory reform, transportation security, and the need for the GSF to expand
its role with intergovernmental and international agencies, such as the United Nations, to ensure that the concerns of shippers are effectively represented.
“This year’s meeting covered a number
of issues of importance to Canadian shippers and importers and looked at ways to
make the GSF a more influential voice for
shippers throughout the world,” said Bob
Ballantyne, CITA president.
The GSF Joint Declaration, issued at the
end of the conference, cautioned that the
current global economic slowdown should
not reverse the tide of liberalization and
competition in trade and international
transport. The GSF continues to promote
the end of legal shipping cartels and the
declaration noted that Asia would be the
« TRNST TME »
YRC, Inc. and YRC Reimer in Canada have
enhanced their northbound and southbound service between the US and Canada
by reducing transit times in 5,500 lanes.
“As we expand our cross-border services
provided by YRC and YRC Reimer, reducing transit times is one more way we can
offer better predictability and more precise
delivery options,” said Mike Smid, president
of YRC and chief operations officer of YRC
Worldwide.
In addition to improved transit times,
YRC and YRC Reimer say they provide a
seamless experience through the availability
of YRC Border Ambassadors – who work
with customers to ensure proper shipment
documentation – and integrated customs
brokerage services through affiliated broker,
YRC Logistics. Customs brokerage is provided free of charge when new customers
book guaranteed or expedited shipments.
YRC is also border-security compliant
and certified in the US Customs-Trade
Partnership against Terrorism (C-TPAT)
program, as well as the Canada Partners in
Protection (PIP) program; the Free and Secure Trade (FAST) program of the Canadian and US governments; and the Customs Self-Assessment (CSA) program.
1/2 page horizontale magazine
YRC and YRC Reimer reduce
cross-border transit times
focus for a GSF campaign for continuing
regulatory reform of liner shipping. However, the GSF does support non-ratemaking agreements in liner shipping, noting the
efficiencies these can bring to both the carriers and their customers.
Doug O’Keefe, chief of international
marine policy and liability for Transport
Canada, attended part of the meeting to
brief the GSF on recent discussions by governments in the Asia-Pacific Economic Cooperation (APAC) group covering the
oversight of non-ratemaking agreements.
This was particularly helpful to the GSF in
its work to promote global harmonization
of regulations, Ballantyne said.
The other major topic covered was the
growing barriers to trade from security and
customs initiatives. The GSF emphasized
its support for rigorous transportation security, noted that officials need to improve
their consultation with the shipper community, and particularly stressed the need
for governments and international agencies
to work for a more harmonized and common approach to security programs.
The Global Shippers’ Forum comprises
organizations that represent shippers (retailers, manufacturers, wholesalers) and
their freight transport interests. These organizations come from all around the world:
from Asia, Africa, Europe and North
America.
Canadian General Freight Index
continues downward slide
The cost of ground transportation for Canadian shippers continued to fall into the
summer. In June, over-the-road transportation costs declined 1% when compared to
the prior month, and 11.8% when compared to June 2008, according to the latest
results from the Canadian General Freight
Index, published by Nulogx.
The Index has fallen consistently over
the last six months, dropping 8.2% since
the end of last year.
The reduction in costs is the result of
the combined impact of declining fuel surcharges and reduced base rates charged by
carriers. In June, base rates had fallen 3.4%
when compared to the end of last year, and
1.5% versus the prior month. The fuel surcharge percentage has also fallen by 30%
when compared to the end of last year,
www.ctl.ca
OCT NEWS P.6-10.indd 9
although it did increase 4.9% in June
versus May.
The CGFI is sponsored by Nulogx, a
transportation management solutions provider, and is used by shippers and carriers to
benchmark performance, develop business
plans, and secure competitive agreements.
It was developed with the assistance of Dr.
Alan Saipe, president of Supply Chain Surveys, a long-time analyst and observer of
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ct&l october 2009
9
19/10/09 11:33 AM
in thenews
news
the transportation and logistics industry.
According to Saipe, “There has been a
clear trend toward reduced transportation
costs for Canadian shippers. Lower fuel
prices, excess carrier capacity, and a highly
competitive marketplace created a ‘perfect
storm’ for Canadian carriers and shippers
have benefited as a result.”
Results and additional information are
available at www.cgfi.ca or www.nulogx.
com.
23Rd AnnuAl TRAnSpoRTATIon
ConFeRenCe RepoRT
Transportation outlook brighter,
but inventory must first clear
Freight volumes, in the dumps for a couple
of years now, will start to grow once again
within six months, David Newman, a senior vice-president of National Bank Financial, told the 23rd Annual Transportation
Conference.
Newman said he has been looking for
“absolute sequential increases” in the economy as signals that the worst is behind us,
and he has been finding them. For example,
the ISM new orders index is definitely
showing green shoots within the troubled
manufacturing sector, Newman told the
conference, which was organized by wellknown transportation lawyer, Richard
Lande, and held this year at Ontario Place
along Toronto’s lakeshore.
“We need the (existing) inventory to
clear and then the new orders will kick in…
We are seeing firming of demand, but no
outright bulls,” Newman said.
Looking specifically at how the modes
are faring, Newman said things are looking a
“tiny, tiny bit better” for the Canadian Class
I railroads, which have suffered a valuation
drop of around 25%. Their stock price is
now starting to recover, Newman said. Rail,
with its focus on bulk commodities, is
somewhat less sensitive to downturns and
has a diversified customer base with some
long-term contracts. Also, during a recession, shippers are more prone to shift to a
lower-priced mode.
Rail is also progressively taking market
share away from trucking competitors at
the border, likely thanks to issues with border congestion. James Cairns, vice-president
of intermodal and ground transportation for
10
ct&l october 2009
OCT NEWS P.6-10.indd 10
CN, also told the conference that his company is looking to take a bite out the transborder reefer market, which is basically a
100% truck solution, currently.
Trucking is a $67 billion sector in Canada, controls 40% of transportation GDP
and accounts for 90% of the consumer
products and food moving in Canada. But
it has been hit particularly hard by the recession and is not seeing the rate recovery
that rail is starting to experience, Newman
said. He also expects more bankruptcies as
banks get more aggressive in culling trucking companies in dire straits when the used
truck market rebounds and their equipment is worth more.
“He who has the best balance sheet and
liquidity is the winner in a recession,” Newman emphasized.
Recovery, however, is in sight and the
market leaders will be the ones best poised
to leverage their scale to take advantage of
the new market opportunities. Traditionally, the LTL market also tends to perform
better during a recovery.
To appreciate just how badly manufacturing has faltered the last couple of years,
one need look no further than the automotive market, which has suffered a 21% drop
in North American sales. George Magliano,
a director with Global Insight, said the hole
in automotive, a key customer for both
truck and rail, is deep and it will take long to
dig out. He projected that the US automotive market will not get back on track till
2012 and will not get back to pre-recession
norms till 2014 while US production will
take a big beating. The Canadian market
looks a bit brighter, he said, although Canadian automotive production will continue
to lose market share to Mexico.
“Demand will be weak for the next 18
months and production will be under pressure till 2013,” he said.
The spectacular demise of the North
American automotive market, and of Detroit’s Big Three in particular, has made life
particularly difficult for motor carriers and
rail, which count automotive as a major
customer.
“You can’t ship half a car,” said John
MacGregor, president of TransDevelopment, pointing out the last couple of years
have seen unprecedented cuts to rail car
blocks and moving larger shipments only
when needed. “However, difficult times
also present carriers with opportunities to
focus on efficiency gains in areas such as
scheduled less-than-daily headhaul moves,
scheduled backhaul moves and better management of their facilities,” he emphasized.
Mike Riggs, chairman and CEO of Innovative Equity, majority owner of Active
Transportation and Jack Cooper Transport,
is certainly a believer in finding a “pony
amidst all the manure.” It is possible to improve margins, even during tough economic
times, if you focus on a variety of areas to
improve, ranging from better purchasing
practices for fuel, tires and insurance, to improving load times and watching overtime.
Investing in technology that identifies problem areas and helps drive efficiency is key to
turning a financial loser into a winner.
Speaking of watching costs, Paul Merrier,
retail electricity manager with Comsatec,
warned transportation professionals responsible for purchasing electricity to be wary of
all the special deals in the marketplace.
“The great deals may not be so great as
you think. If you are looking at hedging, you
really have to understand the market dynamics. And if they are putting time constraints on you and pressuring you to make
a decision, walk away,” he advised.
Just as important as keeping costs in line
during a downturn is the need to challenge
current ways of thinking when it comes to
running our businesses and supply chain operations, said Gerhard Fiedler, president of
Lime Route.
“When you look at the typical freight bill
or warehouse document, there is a lot of duplication and that results in cost somewhere,” he said, adding that reducing supply chain costs should not be about beating
up on transportation providers over price,
but rather about taking out concrete steps in
the supply chain and reducing costs by improving efficiencies.
One area in particular that can yield savings is sustainable transportation practices,
such as taking into account how a supply
chain needs to be designed to simplify recycling of products, pointed out Doug Tozer,
CEO of the Wheels Group.
“Green initiatives will continue to expand and we are representing the people
responsible for implementing them. Ideas
will have to come from the logistics groups
and logistics providers of these organizations,” Tozer said.
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19/10/09 11:33 AM
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OCT NEWS P.6-10.indd 11
889719_gtaa_1646_09_100.indd 1
19/10/09 11:33 AM
9/17/09 9:04:23 PM
JRRGJDPHSODQ
How a WMS and some reengineering kick-started an
enormous productivity drive at RMP Athletic Locker
By Ken Mark
I
n April 2005, when Carlos Maciel
started work as the inventory manager for RMP Athletic Locker, he found
himself in the right place at the right
time. Earlier in January, the company
had installed the Accellos One Warehouse WMS (warehouse management
system) software in its 19,646 sq. m.
(211,645 sq. ft.) Mississauga, Ont. distribution centre (DC).
Before the introduction of the new
WMS, RMP managed inventory using a
paper-driven manual system. But the
One Warehouse implementation and the
firm’s extensive process reengineering efforts helped kick-start an enormous productivity drive. In four short years, the
number of SKUs (stock keeping units)
the DC handles has quadrupled to
55,000 from 13,000, while the head
count dropped 60% to 60 employees
from 150.
The Accellos application has made it
easier for RMP to prepare and manage
“perfect orders” for retail customers in
the savagely competitive world of athletic shoe and active wear marketplace.
“The software made order picking more
focused,” says Maciel. “With the old approach, order picking was random.
“And since the system was simple to
understand and use, workers easily
switched from manual to computerized
picking. It’s all based on logic, so it makes
sense so everything in the DC happens
smoothly. The system is now the founda12
CT&L OCTOBER 2009
OCT RMS P.12.13.indd 12
tion of how we manage the DC. It helped
us reach the next level.”
One Warehouse is easy to maintain,
since DC staff can handle it on their own.
They only bring in the IT department to
deal with updates and occasional tweaks.
One Warehouse also links seamlessly
with the Microsoft Navision ERP (enterprise resource planning) system that
serves as RMP’s IT backbone and with
the corporate database that feeds inventory information to the WMS.
The One Warehouse application has
Canadian roots since Accellos acquired
Toronto-based Radio Beacon in 2006.
“Our other Canadian acquisition was
Headwater. Both are developers of our
core products, Accellos One WMS and
Accellos One Logistics, respectively,”
says Tim Baumgartner, Chicago-based
director of central region for Colorado
Springs, Colo.-based Accellos. “Overall,
about 65% of our employees are in our
Markham and Oakville offices.”
Besides the new technology, other
processes helped modernize the DC. The
transformation resulted from teamwork
involving all RMP executives starting
with the owners Mike and Paul Dyon
along with John Kotarba (vice-president
of operations and logistics) all the way
down to DC employees. For example, IT
director Jeff Bach and IT systems analyst
Domenic Rozzi decided early to introduce one-on-one training for all DC employees – even those that had already
www.ctl.ca
19/10/09 11:36 AM
been trained before. But it took four or five
months for major benefits to appear.
To reduce employee push back, facility
managers, along with IT, made sure that
DC staff became comfortable with the new
system. They trained them to use it
properly, emphasizing how it would make
their jobs easier, faster and more accurate.
“We did not want them to be afraid of supervisors,” Maciel says. “We told them,
we’re here learning the system with you.”
Employees have responded to such policies with their loyalty. More than 50% of
RMP’s core DC employees have worked
there for more than 10 years.
The system also enabled RMP to reorganize the DC’s layout. Clustering brands together in various sectors, as well as separating major retailers’ stock from random
customers’ items, resulted in better-organized picking. And to simplify picking even
more, inventory items were further broken
down into size, colour and style.
Overall, RMP handles 25 different
brands of athletic footwear and clothing,
including Brooks, Fila, Powder Room,
Ripzone and Umbro. Some of the targeted
sports activities are soccer, skate, running
and snowboarding.
Thanks to computerization, pickers simply follow the instructions on their handheld scanner screens. They guide pickers
through the process by indicating which bin
to go to, how many items in the order and
the next stop within the zone. Since the
goods have been consolidated in rational
sectors, pickers no longer need to run
around all over the DC. Such convenience
helps boost picker productivity while reducing their frustration. On very busy days,
the DC handles as many as 500 orders, totalling about 60,000 units.
The system also increases pick accuracy. As pickers scan an item, the scanner
will beep if it is the wrong one. But if the
beep is missed, as the carton containing the
picked items rolls down the line to the
shipping department, an overhead scanner
compares the contents of the box against
the pick list on the box. If the two do not
match, the conveyor diverts the box for
manual inspection.
RMP plans to take advantage of a future
enhancement that will add another accuracy check. Currently, RMP records the individual weights of all incoming SKUs in its
www.ctl.ca
OCT RMS P.12.13.indd 13
database before they are put away.
Later, when the completed box is on
its way to shipping, an overhead
scanner can compare the weight of
the individual items in the carton
against those on the pick list and detect if the shipment is underweight.
If it is, the carton is diverted for confirmation.
This is another example of RMP’s
overall continuous improvement By implementing the Accellos One Warehouse
WMS, RMP Athletic Locker has quadrupled its
philosophy. “We tell our employees,
SKUs, lowered staff levels by 60%, and enjoys
‘If it is not broken, break it,’” says close to 99.8% accuracy.
Bach. “That’s how we analyze what’s
happening and make it better.”
To handle system updates, RMP
maintains a fully functional virtualized test tomer inventory better, it can meet their
environment to facilitate user evaluations. orders in a more timely way. For example, if
“We can try out different options without the DC has 1,000 total units of a particular
affecting our actual operations,” says Ma- SKU – 500 for major customers and 500 for
ciel. “It’s not live or real, so it’s more like a random ones – and a major customer wants
video game. But it gives us an idea of the all 500 and even a few more, RMP can
new functionalities and what they could do “borrow” some of the other stock to meet
for us. We can also test it against what we the order.
already have.”
But if random customers need more
Another benefit of the new system is than 500 of the same items and RMP borfewer customer complaints. According to rows some from the major customer’s
Maciel, RMP’s customer service level now stockpile only to have the major customer
exceeds 90%. And in its last three year-end order 500 items, it faces a real problem. But
inventory audits done by a third-party firm, by eliminating such conflicts, One Warethe results achieved close to 99.8% accura- house can further boost service levels to
cy. The DC usually contains about 2.3 mil- both types of customers.
lion units.
On a more everyday level, Bach is lookIn addition, by updating the organization ing forward to using the updated applicaof its fleet of product movers, RMP has tion for printing custom labels. “We now
squeezed more racks into the same space. use a separate application that makes editAs a result, the company was able to accom- ing and duplicating very difficult,” he says.
modate the inventory gained from repre- “The update will automatically save previsenting another major brand, Fila, that had ous versions, simplify changes and print labeen kept in a separate 3,902 sq. m. (42,000 bels faster and easier.”
sq. ft.) DC.
But the last word belongs to Maciel. “In
Another contributor was updating its a DC, you move goods in and out as quickly
goods-handling vehicle fleet. For example, as you can,” he says. “In a warehouse, you
conventional forklift trucks require 9-ft.- store products for longer and use it more
wide aisles between racks to turn and ma- as a staging area where you have valuenoeuvre. Cherry pickers only need aisles added services.”
just over 4 ft. wide. And Swing-Reach lift
The Accellos One Warehouse system
trucks need only 6-ft. aisles since their forks enables RMP to automate both approaches
need even less room to pivot. RMP now in the same facility.
CT&L
uses the excess space as a staging area to
provide value-added services for a few reVeteran technology expert Ken Mark
tail customers.
has covered supply chain manageOther improvements are in the works.
ment since it was called distribution
RMP is banking on One Warehouse upand has documented its legitimizadates such as multi-client configuration ca- tion as a critical business function. He holds
pability. By managing segregated major cus- an MBA from York University.
ct&l october 2009
13
19/10/09 11:36 AM
cover story
Looking
Beyond
the Box
Couriers’ express retail
outlet strategy has stuttered.
Can it survive under a
better economy?
By Ian Putzger
14
CT&L OCTOBER 2009
OCT COVERSTORY 14-26.indd 14
19/10/09 11:40 AM
cover story
T
he savage downturn in business is forcing the large express carriers to revise their retail outlet strategy. Bold
expansion projects they embraced two to three years
ago have turned into millstones on their balance sheets.
In the quarter that ended May 31, FedEx took a US$810 million
goodwill impairment charge related to the acquisition of Kinko’s,
which it had bought in 2004 and subsequently rebranded FedEx
Office. FedEx Services, which includes FedEx Office and FedEx
Global Supply Chain Services, posted a 13% drop in revenues during the quarter, which management attributed largely to declines in
copy product revenues.
The write-down marks the latest disappointment in the Kinko’s
saga for FedEx. In May, it bowed out of the British market when it
sold its five Kinko’s locations in the UK for an undisclosed sum. Last
September, FedEx had announced that it would close the Kinko’s
operations in Australia, the Netherlands and Mexico.
Florida-based transportation consultant Albert Saphir is not surprised by the international retreat. “The set-up and structure is
more of an American concept. Overseas, the postal service is playing a different role in many markets, and people don’t ship as much
personally and don’t work as much from home as in North America,” he comments.
This assessment matches with the sale of UPS’s international
network of Mail Boxes Etc. to Italy’s Fineffe Group in May. Already
the largest master licensee for the brand with branches in four European countries, Fineffe gained the master licence agreements for
1,227 Mail Boxes Etc. locations in more than 30 countries. UPS has
held on to the UPS Stores and Mail Boxes Etc. brands in the US,
Canada and India.
However, the malaise at Kinko’s goes beyond the international
arena. A year ago, FedEx already took a US$891 million charge in
relation to dropping the Kinko’s name. Several efforts to turn the
operation around failed, including a change in top management
last year.
It was not supposed to go this way when FedEx bought Kinko’s
for US$2.6 billion five years ago. The SME market was growing
rapidly, promising good returns for facilities that combined office
functions with shipping services. In 2006, Kinko’s declared that it
would add 200 new outlets in the US to its network. The same year
saw the opening of its twenty-second outlet in Canada. Besides
boosting its footprint, the company was also experimenting with
larger retail outlets that stocked up to 2,500 products, as opposed to
some 700 in standard locations.
“It’s certainly not the goldmine that people had anticipated, although it does facilitate access,” says Saphir. “In hindsight, Kinko’s
probably was not worth over $2 billion, but when they made the
investment there was no banking crisis, no economic downturn, no
drop in shipping. The market looked altogether different then.”
The painful decline in business this year has forced FedEx management to revisit the retail strategy with a view to reducing cost.
“The recession has brought under scrutiny the whole retail concept.
It’s not really a core business; you have a lot of overheads, and
volumes are down,” says Gary Breininger, president of Infobase
Marketing.
However, he does not regard the retrenchment as a harbinger of
a complete withdrawal from retail. For that matter, FedEx is signalling that it intends to hold the line. “We don’t have any closure plans
for Canada at this time,” declares Sonya Thorpe, a spokesperson for
FedEx Office.
“We provide customers with access points to shipping and print-
ing expertise through our digital and physical networks, and these
access points are an important channel for the FedEx transportation
network,” she comments. “FedEx receives almost $1 billion in shipping revenue through the FedEx Office network every year.”
Breininger agrees that retail outlets play an important role for the
express shipping business. “It is a big win for courier companies to
have a good retail strategy,” he comments. “If you can drive up density, that’s the fastest way to add profit to your bottom line. It directly contributes to profitability.”
Moreover, SME customers, the main target group for this strategy, are not eligible for the corporate discounts that come with
regular high-volume shipping, so the margins tend to be higher,
he adds.
“I don’t think the whole retail concept is being abandoned. It is
morphing, changing in structure,” he concludes.
Shortly after the Kinko’s write-down, FedEx gave an indication
of a new direction in its retail strategy with the conclusion of a
multi-year partnership agreement with OfficeMax in its home market. The retail chain will offer domestic services of FedEx Express
and FedEx Ground in over 900 stores.
The cooperation kicked off in June in a number of locations
in Chicago and Memphis. By this fall, all OfficeMax outlets in
the US should be on board, accepting drop-off packages from
FedEx customers.
“This expansion of the FedEx retail network is designed to benefit express and ground shipping customers, including small business shippers and consumers,” commented Michael Glenn, FedEx
executive vice-president for market development and corporate
communications.
Breininger views the OfficeMax alliance as a step that leaves all
options open, but over time, he anticipates a migration to the partnership approach. He points to Purolator’s arrangement with Staples which was introduced in 2006, which gave the express company more than 250 retail outlets. “It’s been around for a few years
now, which suggests that it’s working,” he says.
Saphir sees no danger that the new partnership could cannibalize business at FedEx Office stores. The number of FedEx Office
outlets is relatively low, compared to the UPS Stores network, so
there should be relatively little overlap with OfficeMax locations,
he reckons.
According to previous experiences with retail points, the danger
of cannibalizing existing business seems small. Neither Purolator
nor the two big US express firms saw a decline of business in their
pure courier locations when they embraced other retail options like
Kinko’s Mail Boxes Etc. or (in Purolator’s case) the Staples alliance,
they claim.
Over the next 12 to 24 months, Breininger expects to see more
alliances between express firms and retail chains, but he does not
anticipate a stampede in this direction any time soon. “The market
is still down. People have enough on their plates – cutting costs,
retaining customers, adapting to market conditions – to do much
with alliances in the retail space,” he reflects.
FedEx seems in no hurry to expand its OfficeMax deal beyond
the US. The agreement does not extend to Canada, and there are no
CT&L
plans to do this in the near future.
Ian Putzger is an award-winning journalist with more than
20 years experience covering transportation and logistics
issues. He is a former writer and editor with the Hong Kongbased Asian Sources Media Group, and Airtrade, a British
magazine covering the global air cargo industry.
CT&L OCTOBER 2009
OCT COVERSTORY 14-26.indd 15
15
19/10/09 11:40 AM
let’s get surgical
Part IV of our series on where to find the biggest,
fastest transportation savings. There are many ways
to reduce transportation costs. But the smartest supply
chain managers understand which options produce
the best results for the effort involved. At an SCL seminar
moderated by editorial director Lou Smyrlis earlier this
year, Kevin McCarthy, manager of logistics at C.H.
Robinson, outlined how to prioritize such methods
according to their ease of application. In previous issues,
we profiled the easiest options to implement and
strategies that would require more work to pay off. In
this final installment of our series, we look at the most
difficult strategies to implement and the savings
possible by implementing them.
COST SAVING STRATEGIES THAT ARE
THE MOST DIFFICULT TO IMPLEMENT
Estimated savings:
Total savings will probably be less than 1% of the transportation budget.
Continuous moves and tours play a much smaller role in order
optimization savings, and are usually approached when all other
optimization opportunities have been exhausted. The most difficult
task to implement, one that requires more work, more time, and
more money, is network modeling. For certain companies, network
modeling is likely to offer good savings potential.
When full truckload orders can be combined into a string so you
can leverage rates from a low cost area into longer moves, you’ve created a continuous move. For example, at one point in time in 2005,
a load from Miami, Fla., to Atlanta, Ga., cost roughly $585, and a
move from Atlanta, Ga., to Chicago, Ill., $870. But a combined load
from Miami to Chicago with an Atlanta stop at that same time cost
$1,355 – a savings of $100. In the case above, where the savings on
the load was 7%, more than 14% of the truckload shipments would
have to be turned into continuous moves to make the savings happen. This would be 28% of the truckload shipments, since it takes
two shipments to make a continuous move. The biggest problem
with continuous moves is timing. Unless you can pick up the second
load right after you deliver the first, the economics don’t work. Even
when both pick-up and delivery happen at the same facility, inbound
and outbound are typically controlled and scheduled by different
individuals and departments; usually each of these individuals is trying to minimize the labour costs in their own receiving or shipping
departments, not reduce transportation costs. Even with good systems
and good tools, the cost of managing a continuous move can quickly
become cost-prohibitive.
CONTINUOUS MOVES
What it is:
Combining full truckload orders into a string so you can leverage
rates from a low cost area into longer moves.
Who benefits most:
Those who have implemented all other methods of optimization.
How long it takes:
Ongoing process for TMS. The big issue is the timing of pick-ups
and deliveries.
16
CT&L OCTOBER 2009
OCT COVERSTORY 14-26.indd 16
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cut into any savings on the rate side.
Who benefits most:
Works best for short-haul freight.
TOURS
What it is:
A company and carrier work together to
achieve continuous moves and to reduce
deadhead miles, on the theory that the carrier will share the resulting savings and want
to do more business with the company.
How long it takes:
Typically found in an ongoing manner by
using a TMS. If collaborating with other customers, you will have to reach out with data;
overhead from these efforts can significantly
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Estimated savings:
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Tours, and collaborating with other companies to create tours, is the hot trend in
the industry, something everyone aspires to
do. Tours require a modeling tool that looks
for highly repeatable movements to string
together, creating cost-effective roundtrip
tours. There can be a high risk if your network changes and there is no longer a need
for contracted, dedicated assets.
Tours have some built-in flaws that you
should know about before you attempt
them. They are based on the assumption
that if you take deadhead out of a carrier’s
network, the carrier is going to want to share
the money with you instead of keeping it for
themselves. In a seller’s market where there
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than freight, an interesting phenomenon occurs. In a buyer’s market, carriers that are
not well capitalized have the least ability to
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carriers is already willing to give you below
market rates, it becomes difficult to create a
tour that is below market. And finally, even
if the carrier shares some of the savings with
you, you have to figure out how to keep as
much of it as possible after taking into account what you paid to administer the tour.
On average, how much money per load
is there to split with the carrier on a tour
that proves successful? Consider an average
move of $700, with an average rate per mile
of $1.65 and 15% deadhead; total deadhead
costs are less than $100. If, by creating a tour,
you could reduce the deadhead to 5%, you
would have less than $70. Your take, after
splitting with the carrier, is less than $35,
which must cover all the administrative costs
for your optimization effort.
* Even with a good TMS, these types of
moves have high administrative overhead –
Continued on p.24
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Transportation
i
Darwinism
Prominent trucking CEOs speak frankly about the fight
to survive their industry’s greatest down market
n recent months, CT&L hosted two separate panels featransturing some of the sharpest minds in over-the-road trans
portation. We combine their comments in this issue to
help shippers gain a top-level look at what will shape their
future dealings with truck service providers. Included in
the panels are: Joe Guimond of Purolator Freight; Doug
Harrison, president of Calyx Transportation Group; Dan Einwechter, CEO of Challenger Motor Freight; Julie Tanguay, executive vicepresident of sales with MacKinnon Transport; Doug Munro, CEO of
Maritime-Ontario; and Serge Gagnon, CEO of XTL Transport.
CT&L: Looking at over-the-road transportation, there is some very real
pain in the marketplace. We are perhaps facing the worst transportation-related recession since the ’70s, with many bankruptcies and a severe drop in company valuations. Just how bad are things right now?
Guimond: I think there is a lot of pain on both sides of the border, with probably a little bit more pain south of the border. But
pain is pain and we are certainly experiencing our fair share of that
pain in Canada.
Harrison: One of the biggest challenges will be the impact of the
dollar on Canadian manufacturing (a key customer base for trucking). We’ve also seen big shifts in fuel pricing, so how do you react
to that? I think overall you will see further consolidation in the industry, in Canada and in the US. And I think it will be very much
like any other industry, the strong will survive while others will either restructure or go out of business.
Einwechter: One of my sayings is that volume is vanity and profit is virtue. There are not many virtuous carriers right now. If I talk
to American or Canadian carriers, the general theme is freight volumes are down anywhere from 15% to 30%. If you look at new
truck sales they are down significantly because of that. I heard earlier of a major shipper doing quarterly checks on its carriers. I wish
more shippers would do that to check out the financial viability of
the carriers hauling their freight. Make sure you work with the right
20
CT&L OCTOBER 2009
OCT MOTOR P.20.25.indd 20
carriers because there are big challenges and there are failures either
occurring or going to occur. Do I like it personally? I don’t like living
through it, but as a carrier that is big and substantial, I think it will
be good for the long term. It’s nature’s way of culling the herd. But
it hurts like hell.
CT&L: As leaders in the industry, you all have implemented, I’m sure,
survival strategies to take you through this time. What would you say
have been the most effective strategies you have implemented?
Harrison: It’s a multi-pronged approach which includes making
sure we are operating effectively, making sure we have the right
headcount, are spending capital correctly, and we have the right
dialogue with our funders and lenders. The other piece is the fact
this presents an opportunity as well. In March, we announced the
acquisition of three carriers, we are continuing to make investments
in the business, we are top-grading talent and adding new roles. It
comes back to financial stability, not only during this period, but in
the period that follows, because if you don’t manage through this
and be ready for the upside, you will be suffering.
Guimond: The most important strategy, for sure, is to stay close to
the customer. Understand what they are going through and understand their needs and the needs of their customers. It’s very easy
during these times when freight volumes drop to do your analysis to
just assume that the decline in business you are experiencing from a
particular client is because of the economy. It’s important to separate
the economic decline from customers who may have left you. Another important strategy is to enhance and accent for your customers
your value proposition. What are you bringing to the customer to
help them get through this difficult time? Understand their business,
understand their supply chain and then point out how your value
proposition is going to benefit them during this time.
CT&L: There are more than 10,000 for-hire trucking companies in
Canada, so there are likely a lot of strategies out there for surviving the
downturn. When you look at the industry, what are some of the stratewww.ctl.ca
19/10/09 11:50 AM
QA
&
gies you see being put in place that are the wrong ones and may
be making it difficult for everyone else?
CT&L: By how much would you estimate capacity has decreased
in your sector, and is it likely to come back?
Einwechter: The obvious thing that is occurring is rate stupidity. We have been in business for 34 years and when I talk to our
new class of driver recruits every week, I tell them that we make
decisions every day that hopefully will allow us to stay in business
for another 34 years. But it’s extremely tough in a marketplace
where a lot of our competitors are making decisions for the next
34 days or even the next 34 hours. They need cash flow, they have
truck payments to make – I liken truckers to the Old Wild West.
They go into a bar, get in a fight, dust themselves off and go back
at it. They can’t do that anymore though – they’re getting older. I
see a shift happening. This recession in trucking has been going on
since August of 2006 and the stamina is just not there. So we are
seeing a lot of prospectuses coming across our desks from carriers
that would like to exit with some dignity. There are a lot of really
good people in this business, but I am surprised at the number of
carriers who have been able to continue to exist in a very challenging environment and there are a whole number about to fail.
Guimond: It’s difficult to place an absolute number on the capacity reduction that has occurred, but certainly there has been significant capacity reduction in all the transportation sectors. Especially
with the idling of equipment, laying off of drivers and reduction to
the volumes experienced. When the economy does come back, it
will be those carriers who have set up processes and procedures to
improve their service and improve their relationship with customers that are going to thrive. When the volume does come back, capacity, especially for the LTL industry, is fairly easy to ramp up
again with respect to drivers and equipment. There are areas of the
country, Western Canada for example, that may experience difficulties as we did before, but overall, the ability of the industry to
ramp up capacity is fairly good and somewhat flexible.
CT&L: We went through a good three or four years of strong financial
times. I would have assumed during those times there would have been
some money set aside by these companies to weather a future storm. We
know that we get an economic downturn about every seven years or so.
What happened?
Einwechter: I think that did happen to some degree, so people
are living on borrowed time. There is a saying that a bull market
disguises intelligence or lack thereof. I think that’s what happened;
with the dollar at 60 cents, getting paid in US dollars was great,
trucks were getting financed at 110%. You would actually get the
truck financed, get the money for the GST, pay for the truck a
month later and get the GST refund – not a bad deal. We were out
of sync and that’s why there was such a proliferation of new carriers.
But at the end of the day, we are in a demanding, challenging environment where we need the technology to monitor the freight; we
need to on-time metrics. I welcome metrics. Tell me that I need to
perform at a certain level and measure me, or if you can’t measure
me, I’ll do it and report back to you. That is key. That’s where so
many carriers now are not going to make the grade, because they
don’t have the ability to invest in technology, the desire or the interest. They are spending their kids’ inheritance now.
www.ctl.ca
OCT MOTOR P.20.25.indd 21
CT&L: In the past, whenever we’ve had an economic upsurge, a lot of
the capacity additions have come from the smaller and medium-sized
companies. Will those players be able to come back this time or is the
financing so tight that those players will no longer be able to be players?
Harrison: I’m going to express a different opinion. I don’t think
you are going to see capacity come back. I think the pressure from
the capital markets and the learning that has gone on will make
people much more cautious coming out of this downturn. Volumes
now are off 20-25% and you look at some of the forecasts for 2010
for maybe 4-5% growth, you are still not going to see the return to
capacity we’ve seen in the past. I think we’re coming into a very
different world entering 2010. I think you will see everyone focusing on what investment to make and you will continue to see bankruptcies and consolidations. The strong will survive, but the challenge will be with the small and medium-sized carriers who will
struggle because at the end of the day, if you don’t have cash, you
can’t pay, and margins have always been tight in this industry.
Einwechter: The trucker is the last frontier of the cowboy and
the entrepreneur and I think that’s great. But it will be tougher to
do that, and with all the challenges out there, the numbers will
definitely go down. In regards to capacity specifically, I’ve spoken to
carriers who have taken 15% capacity out of their fleet and we are
probably about the same. But when volumes are down 20%, there
is still some space to tighten up before seeing the rebound. As far as
CT&L OCTOBER 2009
21
19/10/09 11:50 AM
QA
&
growth, the big regulators of this industry will now be the financial
institutions and the insurance companies. The banks are going to be
so much tougher in their criteria to lend money, so you are not going to see easy access to capital. By 2013, when all of this is in the
rearview mirror, it will get looser again, but not as liberal on the
liberal policies as we’ve experienced.
CT&L: Ten years down the road, do we see a much more consolidated
industry? How is that good for shippers?
Tanguay: I think we will see more consolidation, but the ones
that have made it through this tough time are going to look at their
succession plans and their long-term strategies. We are not seeing a
lot of mergers and acquisitions right now, but I compare it to retirement investments – whatever we had put away, everybody took at
least a 20% hit and it happened so fast. The same thing is happening
with these small private companies. Things were going great and
then the recession hit and balance sheets were being weakened and
the trucks were not worth what they once were. A lot of these small
carriers are family operations, they’re lifestyle operations, and they
have a lot of blood, sweat and tears, maybe one or two generations
in. They have a perception of what they are worth and a buyer
comes in and explains to them mathematically what he thinks the
company is worth and the two numbers don’t jive. I think some of
these operators are going to spend the next couple of years rebuilding their companies, rebuilding their balance sheets with the intent
to sell because they don’t want to go through this once again. On
the upturn, you will see more mergers and acquisitions.
Harrison: I think we will see more consolidation. There is no
doubt about it. There are carriers that want to be seen as an acquisition target. In terms of a benefit to the shipper, I think there is great
benefit. There is economies of scale, the ability to invest in the business, the ability to have greater reach, not only domestically, but
globally. It’s stronger companies which create a stronger industry
and bring more value back to the customer. It will be a good thing
for the industry.
Guimond: I definitely see mergers and acquisitions occurring.
They are occurring right now and will continue to occur. If the acquisitions are strategic in nature, such that the acquirer is increasing
their scope and capabilities, it will be beneficial for shippers when
the carrier provides a better and broader product for their customers.
CT&L: One of the most interesting trends we’ve found in our research
is the changes in growth between transborder and domestic freight.
Of course, we all know that transborder freight has been hurt the last
22
CT&L OCTOBER 2009
OCT MOTOR P.20.25.indd 22
couple of years but, in fact, we have been following a trend since
2002 which has shown domestic freight growing three times faster
than transborder freight. Do you see this trend continuing after the
economic recovery?
Gagnon: Our domestic business right now has not been impacted
by the recession, I must say. With our openings in Vancouver and
Calgary, our business is 50% domestic and going the way that domestic will be an increasingly bigger part of our business. We have
basically retail clients in our domestic business and business is still
fairly good. While some clients’ business is down 1 or 2%, with
some clients it’s up. If you are hauling basic foods, for example,
business is growing for bulk stores.
CT&L: What does this mean to you from a competitive standpoint?
Are we going to see more carriers trying to move into national domestic
and regional lanes as their other business starts to hurt? Are we going to
see more regional players grow into super-regionals, like Pitt-Ohio in the
US, covering a larger part of the domestic market?
Munro: Yes, I think it will be exactly like you said. There will be a
general changeover to more regional types of carriers. Business gravitates to where successful business is, so to the extent that the Canadian domestic market is growing, or at least shrinking less than
the rest, there is that movement. And, as you say, as regional players
get into the market, they will try to bolster the lanes they are servicing or add on to them to sell their clients into more services.
Tanguay: As more 3PLs become players in the purchasing department of the shipper, I think we are going to be very challenged
to use the relationship to really sit down across the desk and share
costs. We do that now; we show customers what it costs to serve a
lane. When you are dealing directly one-on-one with a shipper, they
understand it, they want to see you healthy, they want the longterm relationship. But once the 3PL gets in between, it’s going to be
harder to have those conversations. The 3PL model is not what we
have built our company on over the past 60 years. We did business
with one shipper for three generations on a handshake, not one
piece of paper was signed. I think we are going to be really challenged over the next few years. There are almost going to be two
lists of customers. I know which customers are going to get our capacity and which ones are not going to get our capacity. I do believe
capacity will be tight. When supply and demand is going to be in
our favour, there is going to be aggressive action. I think there is going to be the attitude that the industry has been kicked pretty hard
and we are bruised and cut pretty bad and I know quite a few carriCT&L
ers are looking forward to the recovery.
www.ctl.ca
19/10/09 11:50 AM
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19/10/09 11:50 AM
Continued from p.18
in the range of $15 to $20 per tour – since
there is a higher incidence of difficulty once
two or three shipments are strung together.
NETWORK MODELING
What it is:
Network modeling compares transportation costs, but also considers inventory and
manufacturing costs when optimizing a network. A model needs to be built at the item,
family, or department level, depending on
the company and mix of products. Crossfunctional teams are required to build and
validate findings.
you into the vicinity of where you need to
be. They won’t tell you whether to put a
distribution centre in Long Beach or in the
Southern California desert. They will tell
you that Southern California makes more
sense for the DC than Sparks, Nev.
The biggest difficulty with network
modeling is collecting the baseline data. It
is not an insignificant effort to collect shipment history and rates and to understand
the capacity of various DCs. It becomes very
complex if an organization has acquired two
or three other companies, each with
its own challenges.
Who benefits most:
Larger companies with multiple
distribution points that are looking for the next level of growth,
or those that have acquired companies recently and haven’t looked
at how the distribution networks
overlap. Also valuable for companies that are reengineering networks
and making strategic tradeoffs between inventory, transportation, and
service.
How long it takes:
Depending on the company’s size, it
can take three to six months to gather
the data required to build and baseline a
network model; costs easily run $100,000
or more. Maximizing the investment in
network modeling requires ongoing management so that potential changes in the
network can be constantly evaluated.
Estimated savings:
Savings can be very large (20% to 30% is not
uncommon) if the company improves its
in-stocks and if inventory can be eliminated
with network changes.
Network modeling is the key tool for
strategic savings, since it makes a comprehensive assessment of current transportation, inventory and manufacturing costs and
develops strategic models for optimizing
the entire supply chain. The strategic models created during the network modeling
process are not a precision tool. They bring
24
CT&L OCTOBER 2009
OCT COVERSTORY 14-26.indd 24
When multiple
entities are involved, different data
sources and different methodologies for accounting for costs can be at play, adding to
the problems.
Logistics consultants can usually find a
way to get to the needed data, if they look
long enough and hard enough.
But if collecting all the required data
has its difficulties, it is also one of the biggest advantages of doing network modeling. Without common data, there will be
competing data and assumptions, some
more aggressive than others, within a company. Developing a network model creates
a shared understanding of how the network
works, and a shared set of assumptions and
data to be used by all teams considering
changes.
Savings can be very large (20% to 30% is
not uncommon) if the company improves
its in-stocks and if inventory can be eliminated with network changes. This is huge
and meaningful, not just to transportation
and distribution, but to the company’s bottom line.
SAVINGS AND THE SPEED
OF CHANGE
As you work toward optimizing your sup
supply chain, savings are the light at the end
of the tunnel. But just as each company
has a hierarchy of tasks that will lead
toward optimization, each organization
will also have its own tolerance level for
changes that are necessary to produce
those changes. When multiple divisions
and business units must agree on and
implement process changes, achieving
the highest possible levels of savings
may take longer. Buy-in and support
from the highest levels of manage
management can help facilitate the process
of change. So can skilled logistics
consultants, who regularly use
all of the optimization tools and
know how to get the most value
out of them.
Using a particular method
of optimization for one purpose can sometimes become a catalyst for
further change in another area. Consider,
for instance, that when a TMS is imple
implemented, it forces discipline into the order
shipment process cycle. Quite often, the
enforced discipline will expose irrationalities in the current process. For example,
manufacturers without process controls
will sometimes allow customers to change
their orders right up until the shipment arrives, and certain customers tend to get into
the habit of making changes of this sort.
As the TMS captures the data, the company will learn exactly how much it costs
to make these last-minute changes and how
it negatively impacts the bottom line. The
company can use the information to make
more changes that will lead to savings and
improve overall profits.
CT&L
www.ctl.ca
19/10/09 11:42 AM
OCT COVERSTORY 14-26.indd 25
19/10/09 11:42 AM
JHWWLQJE\
ZLWKDOLWWOHKHOSIURP\RXUIULHQGV
Annual 3PL survey finds recession creating new opportunities for outsourcing
T
he economic downturn is serving as impetus for shippers to
reconsider the roles 3PLs are allowed to play in their supply
chains, according to the 14th Annual Third-Party Logistics
Study, completed this year.
North American shippers devote, on average, 47% of their total
logistics budget to outsourcing, but tend towards outsourcing logistics activities that are more transactional, operational and repetitive,
and less frequently those that are more strategic, customer-facing
and IT-intensive. However, this year’s survey found shippers more
open in the future to outsourcing strategic services that may be
available from 3PLs.
The economic downturn has challenged shippers to better deal
with factors such as unpredictable demand, volatility in fuel costs
and currency valuation, and excess inventory. And some of the strategies they are putting in place to deal with these issues could lead to
greater use of outsourcing. Nearly 60% of shipper respondents
agreed that current conditions are serving as an inflection point to
rethink their supply chains as well as their relationships with 3PLs.
“It is very important for us to mitigate or reduce any adverse
service level impacts or financial risks that result from the current
economic environment,” concurs Mark Holifield, senior vice-president of supply chain management at The Home Depot. “Although
supply chain and logistics management are areas of core competency for our company, there are selected instances where the use
of 3PLs may be a wise business decision.”
The survey found that to overcome these obstacles in the
near-term, shippers are employing tactics such as cutting operating costs (82%) and improving forecasting and inventory management (77%).
“But they’re also using the downturn as an opportunity to assess
their supply chains’ strengths and weaknesses and make changes
designed to increase agility, be more responsive and reduce costs.
Strategies here include network redesign and creative collaboration
with trading partners and even competitors,” the report states. It
adds that those strategies most likely to increase shipper respondents’ use of 3PLs include converting fixed to variable costs (59%),
expanding to new markets or offering new products (56%) and restructuring the supply chain network to improve financial performance (48%).
Converting Fixed to Variable Costs: This strategy is the one
most likely to increase shipper respondents’ use of 3PLs. It includes
outsourcing more logistics activities to 3PLs and using a SaaS (Software as a Service) model, a pay-per-use concept, when implementing new technology.
Expanding to New Markets or Offering New Products: Many
shippers would welcome 3PL assistance in their global expansion.
3PLs often know local landscapes better and offer expertise in global trade management, enabling trade compliance and other key capabilities. Expanding to new markets and offering new products is
the second most-likely strategy to prompt shipper respondents to
increase their use of 3PLs.
Network Redesign: Another tactic is redesigning the supply
chain network (60%), considering moves such as rationalizing the
number of warehouses, using reverse logistics practices, or nearsourcing to reduce transport time and increase predictability. Shipper respondents to the survey ranked restructuring the supply chain
to improve financial performance the third most-likely strategy to
CT&L
cause them to increase their use of 3PLs.
&(2VRI3/VVKDUHHFRQRPLFSUHGLFWLRQVLQQHZUHSRUW
By John Evans
T
he CEOs of major 3PL providers remain cautious about their companies’
future growth, according to a survey on the
outsourcing market released by Penske Logistics.
The survey gathered responses from 35
CEOs from North America, Europe and
Asia-Pacific about their revenue projections
and the behaviour of the market over the
next three years. It also compared their
companies’ performance this year to the
projections given on last year’s survey.
The results were characterized by caution – projected growth for this year was
even slimmer than in 2008. CEOs from the
Asia-Pacific region anticipated the greatest
growth, 12.9% compared with 21.4% in
2008. European CEOs actually projected a
3.3% shrinkage of their companies, when
26
CT&L OCTOBER 2009
OCT COVERSTORY 14-26.indd 26
last year they anticipated a 10.8% growth.
North American executives projected 6.9%
growth, down from last year’s 12.6%.
While hard decisions had to be made –
28 CEOs reported layoffs in the last year –
they bore fruit. Only one of the 35 reported
his company was not profitable in 2008.
Those decisions seem to be aimed at
helping companies run efficiently over the
long term. Only six CEOs reported cuts to
employee training, and 25 started up new
sustainability initiatives. Not a single CEO
reported cutting back a ‘green’ program.
This focus on getting their own houses
in order seems to have put a bit of a chill on
mergers and acquisitions, with only a quarter of companies involved in a significant
deal. The surveyed executives expect less
than 9% of their revenue growth over the
next three years to come from acquisitions.
In speaking about their customers,
North American and European CEOs reported nearly a quarter of their customers
had worked to shorten their supply chains,
and Asian CEOs reported a still significant
9%. Twenty of the respondents reported
major customers moving manufacturing
from Asia to the Americas and Europe.
The questions about their customers
also gave an interesting snapshot of how
other business owners are coping with the
pressure of the recession – all regions reported a full quarter of their customers
were more adversarial. Yet American
CEOs reported a third were more collaborative. Europeans saw a fifth of their customers become more collaborative, and
CT&L
Asians more than one-tenth.
www.ctl.ca
19/10/09 11:42 AM
OCT NO'S P.28.indd 27
19/10/09 11:51 AM
inside the numbers
Measurable Benefits from use of 3PL Services
Results
3,000
Logistics Cost Reduction (%)
12.3%
Logistics Fixed Asset Reduction (%)
23.4%
Inventory Cost Reduction (%)
That’s the rough number
3,000
ON
RCING
TO
All Regions
Order Cycle Time
of North American trucking
8.6%
Changed From
Changed To
companies that have declared
bankruptcy thanks to the im-
Order Fill Rate (%)
pact of the recession. Trucking
company valuations are down
9.8 days
Changed From
86.0
Changed To
92.7
Order Accuracy (%) Changed From
about 45% and employment
in the for-hire sector is at levels
Changed To
not seen since the mid-’90s.
While trucking may be the
10.2 days
90.4
95.3
OUTSOURCING A PROVEN BENEFIT
Shippers responding to the 14th Annual Logistics Outsourcing Survey reported
measurable benefits from using 3PL services. Metrics relating to logistics cost
reductions and to logistics fixed asset reductions are consistent with those
reported in previous years. This year, the survey also asked respondents to
indicate any inventory cost reductions they experienced. Users reported
an average 8.6% decrease due to use of 3PLs.
worst hit, it has plenty of company. More than one million
ocean containers are sitting
idle, while the usually robust
Canadian Class I railroads have
also suffered significant drops
to their valuations.
Spending on Outsourcing as % of Total Logistics Spending
80
70
60
50
40
30
47
50
54
66
71
74
62
65
70
51
55
60
20
10
0
North America
Europe
Asia-Pacific
Current 2009
Latin America
PENETRATION OF OUTSOURCING
PROJECTED TO GROW
The penetration of outsourcing
is projected to continue growing,
according to the data from the
14th Annual Logistics Outsourcing
Survey. The current percentages
of logistics shipper respondents’
budgets devoted to outsourcing
for Europe, Asia Pacific, and Latin
America (66%, 62%, and 51%,
respectively) are slightly higher than
those reported in the 2008 study.
This may indicate a small increase
in expenditures on 3PL services
over 2008 in those regions.
Shippers in all regions predict that
the percentage of logistics budgets
they devote to outsourcing will
increase in the future.
Projected 2010-2011
Projected 2012-2014
28
CT&L OCTOBER 2009
OCT NO'S P.28.indd 28
www.ctl.ca
19/10/09 11:51 AM
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3/13/09
1:31 PM
Page 1
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Look no further. Canadian Transportation
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OCT NO'S P.28.indd 29
concerns based on detailed research of
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the bigger picture
Understanding the differences between C-level and
O-level perceptions of supply chain management
T
Laurie Turnbull,
CITT, P.MM
Laurie Turnbull is a
supply chain consultant
with the Cole Group,
a leading Canadian
logistics company
providing customs
brokerage, warehousing
and worldwide
transportation services.
Turnbull can be
contacted at
[email protected].
30
ct&l october 2009
OCT BIG PIC P.30.indd 30
here has been a growing awareness in recent
years of a difference in perception between Clevel executives (CEOs, CFOs, COOs) and Olevel managers (Operations-level managers including
transportation, purchasing, logistics, inventory, materials management, etc.) when it comes to the role of
supply chain management.
These differences in perception within the same
organization may seem paradoxical, but they also illustrate a potentially troublesome scenario for transportation managers.
Julia Kuzeljevich, features editor for Canadian
Transportation and Logistics magazine, touched on this
subject in her excellent cover story “Not Too Close For
Comfort” in the May issue of CT&L. The cover story
addressed changing global sourcing strategies identified in the 15th Annual 3PL Provider CEO Perspective
study. One of the many important trends identified by
participants in this study was the increasing number
of organizations adopting near-sourcing strategies, relocating their operations away from Asia and closer to
home (reportedly 20% of European CEOs and over
30% of CEOs in the Asia-Pacific area) in response to
increasing fuel costs, currency fluctuations and timeto-market concerns.
These changes in direction also serve to highlight
the differences in perception between C-level executives and O-level managers. For example, transportation managers traditionally balance cost and service
concerns, although with the advent of global sourcing
practices, increasing freight costs are a reality, focusing more attention on service concerns as a result.
Faced with longer transit times, potential delays and
multiple border crossings, it’s understandable that
transportation managers would strive to develop longterm carrier partnerships based on consistent, reliable
service patterns.
In many cases, cost concerns may take second place
to delivery performance as transportation managers
respond to requirements for sales-driven customer
service objectives, balanced by financial concerns for
minimal inventory levels. Optimally, these carrier re-
lationships tend to be founded on repetitive (or forecasted increases in) shipping volumes.
However, the 3PL Perspective study identified
concerns among C-level executives that extended
chains also raise vulnerability issues, resulting in a desire for more agile supply chains, providing flexibility
to relocate operations to other countries as market
conditions dictate. These differences in perception can
result in competing interests between transportation
managers focused on supply chain costs and attempting to develop long-term supplier relationships based
on stable, repetitive shipping volumes, and C-level
executives more concerned with quarterly results and
total landed costs, requiring flexible supply chains that
can have adverse effects on rate levels and may result
in shorter-term carrier relationships.
For transportation managers faced with this dilemma, two requirements should become abundantly clear:
1. The need for O-level managers to have senior management representation so they can have access to information that might indicate pending market changes.
2. Provision for flexibility when developing strategic
supply chain plans, including the potential need for
contingency carriers in the event near-sourcing becomes reality.
Another consideration in this decision-making process is the impact on inventory, both from the perspective of investment costs and carrying costs. Near-sourcing
may result in shorter lead times, which, in turn, can have
a significant impact on inventory levels.
Employees look at inventory in different ways:
C-level executives view inventory in terms of its impact on working capital, while O-level managers view
inventory as a buffer against erroneous forecasting and
potential customer complaints. In fact, inventory overlaps both of these areas and needs to be reviewed as
early as possible when organizations consider changes
in strategic direction.
Understanding this difference in perception is critical for O-level managers to be successful, particularly
with regard to how their performance will be measured by the executive suite.
CT&L
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Increased Visibility...
At Hub Group Canada, you'll receive web-based information technology that pushes exceptions and status
reports to you 24/7. This, along with a host of other on-line features provides you with increased visibility,
valuable management data and overall peace of mind.
Our North American network of local offices, qualified carriers and specialized services can help solve even your
toughest transportation problems. Clearly, you benefit by partnering with our team of professionals to optimize
your transportation dollar.
Please contact:
Barry O’Neill, Vice President
Hub Group Canada, L.P.
[email protected]
1.800.829.0466
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