Decisions 2008

From the founding Sponsor
S
haw Tracking, offers integrated onboard computing technology and
value-add wireless data solutions
for the Canadian transportation, mobile
workforce and logistics industries. For
over 17 years Shaw Tracking has been
focused on providing scalable over-the
road fleet management business solutions for organizations of all sizes. With
over 700 customers and 40,000 vehicles
Shaw Tracking has established economic payback and proven results.
Looking
Silver
Shaw Tracking continues to support the
transportation industry and provide technology solutions to meet the evolving
needs of carriers. Acting as Founding
Sponsor of the annual “Shipper-Carrier
Issues Roundtable” was a great way for
Shaw Tracking to be able to support the
dialogue among all aspects of the supply
chain and the challenges industry stakeholders are dealing with. Shaw Tracking
anticipates the upcoming year to be a
year of technology solutions being
adopted to solve industry challenges.
THE PANELISTS
Larry Jensen
senior manager procurement,
Ryder Transportation
Management
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MOTORTRUCK
Scott Smith
president,
J.D. Smith & Sons
Peter DiTecco
president,
Armbro Transport
Scott Johnston
former president & COO,
Yanke Group
2008
Our Second Annual
Shipper-Carrier Roundtable
he current slowdown in the North American economy,
and fears of a looming recession, are sure to put the relaT
tionships forged by shippers and carriers in recent years to the
for the
Lining
PT. II
In the conclusion of our round table series,
leading shippers and carriers debate
the issues of currency surcharges and
technology investments
Doug Munro
president,
M-0 Freightways
Bob Ballantyne
president,
Canadian Industrial
Transportation Assoc.
MODERATOR
Lou Smyrlis,
editorial director
Transportation Media
test. Thanks to sometimes conflicting cost pressures and service demands, buyers of transportation services tend to have
different viewpoints from the people who provide them with
those services.
So how do shippers and carriers view the issues facing
them in 2008? Are there significant degrees of divergence?
That’s what we wanted to find out in putting together our second annual Shipper-Carrier Issues Roundtable.
Our roundtable participants had a great deal to say and so
we are sharing their insights with you over the course of two
issues.In Part I of our Issues Roundtable our participants spoke
about their economic outlook for 2008 and the related issues
of rate trends, imbalances and capacity. (See your
November/December issue of Motortruck Fleet Executive and
also go to www.trucknews.com for video clips from the roundtable
provided in a special installment of our new Web TV show
Transportation Matters.)
In this second and final installment our participating transportation executives speak frankly and insightfully about the
impact of the rising dollar and the case for currency surcharges,
as well as how technology investments can be used to boost
efficiencies and cost savings.
BIG Transportation Media, through its ownership of both
motor carrier and shipper publications, is in the unique position of being able to see issues from “both sides of the fence.”
We consider it our mandate to foster dialogue between buyers and providers of transportation services. Our annual
Shipper-Carrier Issues Roundtable,which is published in both
our carrier and shipper publications, is a step towards that
goal. It allows buyers and providers of transportation services
across the country to gain a more well-rounded understanding of the issues at hand.
This roundtable would not have been possible without
the support, once again, of Shaw Tracking and I wish to thank
this highly respected industry player for its support. I would
also like to thank all the roundtable participants who took time
out of their hectic schedules to make this roundtable a possibility.As with past participants, these individuals were specifically chosen because of the high-esteem with which they are
held within the transportation industry and their insightful and
honest contributions certainly showed why.
I think one of the most impressive developments in transportation management I’ve witnessed over the almost two
decades that I’ve been reporting on the industry is the willingness of forward-thinking shippers and carriers to truly appreciate their interdependence and work together to resolve
issues in a manner beneficial to both. I hope the strain placed
on the shipper-carrier relationship by the slowing down of the
economy does not make for a setback in that evolution, particularly because it is the carriers and shippers who work well
together that are most likely to get a jump start on the eventual resurgence of the North American economy.
Lou Smyrlis
issues roundtable
MT: Obviously the rising value of the Canadian dollar has caused
concern for carriers, particularly those running stateside and getting
paid in the now lower-valued US funds. Yet some shippers also
counter that our dollar’s rise makes this a perfect time to invest in
new equipment so that carriers can be ready for the next upturn in
the economy. Is that a smart strategy at the moment?
Smith: If you need to upgrade your fleet, the opportunity is
great but I’m not sure that’s going to push a lot of equipment
purchases. I think there are other things that mitigate that opportunity. One is the 07 pre-buy that a lot of people did. The
extra capacity right now is also not pushing fleets to buy new
equipment. And, in some cases, probably a tighter credit market as well.
DiTecco: And if you are trading in you are getting less for your
trade in. It’s worth less because the dollar is worth more. If you
need the equipment, you buy it, but I don’t think there is an incentive today just because the dollar is stronger. You’re gaining
on the one hand and losing on the other.
Johnston: Our industry has in the past been primarily family-owned and absolutely resilient, with entrepreneurial risk takers who have often introduced assets and capacity without
perhaps defined demand. But I have to say that over the last 36
months that has changed – for anybody running a major transportation company in Canada, it’s almost like getting an economics degree. We used to be far more comfortable in the shop
and working with our assets and today I think we are all quite
fluid in working with our financial statements and our spread
sheets, trying to figure out what’s going on. The industry is far
more astute today in terms of return on capital and investment
than we have been in the past.
MT: Doug, we’ve touched on this in the past, with you mentioning
that perhaps a slower and more methodical approach to growth is
better than some of the fits and starts we’ve experienced where we
add capacity and push rates to try to get as much as we can out of
an economic opportunity and then hanging on for the eventual
downturn. Is the industry somewhat to blame for its troubles because
it has not chosen a more methodical approach to growth?
Munro: I’m not sure. I think it’s the law of economics that’s at
play – supply and demand. When everything is going up, everyone wants to buy and there is customer demand in response to
that and then it changes quickly and catches people unprepared... I don’t know if there is an answer to that. I believe there
will be more capacity issues down the road as there is a shakeup of the market and consolidation that will occur. But beyond
that, I’m sure no customer wants to put a carrier out of business
but they don’t know what our costs are. When they look in the
market and see price X from one carrier and price Y from another carrier, they are going to take the lowest price and you really can’t blame the shipper for thinking that way if they are
worried about their own business. So I think we have to ride the
market up and ride it down just like every other business.
MT: I want to go back to the impact of the dollar. I remember when
the dollar first started to rise a few years ago, some of the transportation industry experts cautioned that there is no way that a
trucking company can take a 20% hit to their revenue base and survive so why not introduce a surcharge to cover fluctuations in the
exchange rate? The dollar has since risen even higher but I know
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MOTORTRUCK
2008
from our own research that not many shippers are paying a currency surcharge and I haven’t heard the pro-currency surcharge argument made in a while. Is there still merit in doing so?
DiTecco: We have a small amount of receivables in US dollars and we do have a conversion that we change every week.
We have a formula that we discuss with our shippers and say
this is how we have to do business. There is no way you can afford to take 20% or 30%.
Johnston: Treasury management has become a critical point
in defining any successful transportation company. Balancing
your US receivables with US payables when you buy equipment is one of the ways to insulate yourself. We’ve had a currency matrix that basically follows the currency and insulates
both parties against fluctuations. Sometimes it swings in the
shipper’s favor when the dollar moves in a negative direction and
sometimes it insulates the carrier when it moves in the opposite direction. That way you don’t have to go back and requote.
This is a capital intensive, low-margin industry. If a carrier did
some spot moves 90 days ago, given the shift the dollar has
taken, breaking above the $1 US and then going up to $1.10.,
the rates quoted 90 days ago now put them upside down. You
don’t make 10 points in the full truckload market.
MT: So for the buyers of transportation, are carriers coming to you
complaining that the currency situation is hurting them too much
and want to introduce a currency surcharge?
Jensen: We’ve always had currency fluctuations but they have
been gradual and slow. About four years ago, they became quite
volatile. Historically we had done all our transportation procurement crossborder in US funds, so we changed that policy to
contract the carrier in their currency of origin. We contract
Canadian carriers in Canadian funds and US carriers in US funds.
At the same time we also built an emergency surcharge procedure which I was prepared to implement on a weekly basis. Four
years later I haven’t had to implement that emergency surcharge
and I hope I never do. We’ve resolved the problem by paying
the carrier in the currency of his origin.
MT: So when the Canadian carrier turns around in the US and
comes northbound, he’s then paid in US funds?
Jensen: No, the Canadian carrier in both directions is paid in
Canadian funds. What’s happening with the north-south move
is a separate issue which goes back to the rate question. There
is such a lack of volume going south we are seeing an increase
in northbound rates and a reduction in southbound rates. But
roundtrip the carrier has to get the number he is looking for or
he’s not going to stay in business.
Ballantyne: I haven’t heard much in the last few months from
my members about the currency issue.Obviously the one surcharge
that sticks in everyone’s throat is the fuel surcharge, but when you
have elements in your cost base that are highly volatile, they have
to be addressed somehow or other. Ideally, from the shipper’s perspective, you get quoted a rate and it covers all of the carrier’s costs.
When I talk to our members I’m told they don’t like surcharges but
they do understand about high volatility and that the carrier has to
be compensated. I guess surcharges are a fact of life.
MT: The next issue I want to address is technology. Obviously, in
tougher economic times, like the ones we appear to be heading into,
Round table continues on page 37.
Tires – Continued from page 33.
The Nitrogen Debate
Nitrogen inflation proponents have
this to say: Air-filled tires lose about
two pounds of pressure a month, so
fleets with lax tire management programs likely have chronically under-inflated tires. This increases fuel
consumption, tire wear and the risk of
blowouts. Moisture-laden air causes
tire pressures to increase by 10-15%
by the time they reach operating temperature, contributing to reduced tire
life. Oxygen causes tire rubber to
chemically degrade and the oxygenmoisture mix rusts steel belts and rims.
Nitrogen-filled tires, on the other
hand, lose pressure at perhaps at a
third of the rate of air-filled tires, ergo
better mileage, less wear and fewer
failures. Nitrogen is dry, so there are
no rust problems. The pressure in nitrogen-filled tires does not increase as
much as tires reach operating temperatures, reducing tire wear. Nitrogen
stops the chemical aging of rubber.
Nitrogen-inflated tires can be recapped more times.Aircraft and racing
cars fill their tires with nitrogen, so it
has to be good for trucks too.
Those cool to nitrogen inflation
say: Save your money (a third party
charges around $10 to inflate a tire
with nitrogen) and invest in a good tire
management program; you need one
anyway.Air is already 78% nitrogen, so
how can 17% more nitrogen (a nitrogen-inflated tire has about 95% pure
nitrogen in it) make any difference?
Tires are designed to run at higher
pressures at operating temperatures.
Nitrogen may stop chemical aging, but
since many fleets err on the side of caution and toss their tires after six years,
aging is a non-issue. Even if you can
get another retread out of your casing,
it does not outweigh the cost of nitrogen inflation. Planes and racing cars
work in far different operating envelopes than trucks, so comparisons
with trucks are overcooked.
Some skeptics concede that nitrogen-filled tires lose pressure more
slowly, they inflate less as they heat
up and internal corrosion may be less.
However, they are reluctant to attribute any operational significance to
these effects, which are nothing that a
good tire management program and
air dryers cannot fix.
MT
Round table – continued from page 36.
the more efficient your operations are, either as a carrier or a shipper, the better. I want to explore what
role technology can play in creating a more efficient operation. If I can start with you Scott, I know
Yanke spends a heck of a lot of money on its technology platform.
Johnston: I think there are two reasons why one needs to. North America needs to become
more competitive in a global environment to bring manufacturing and distribution to our continent. The other reason is the shortage of manpower, not only for professional transport operators but in all positions in transportation.You are going to have to deploy and rely on technology
to more efficiently run your operation and have less of a reliance on some of the manual processes we currently undertake. The challenge is that when we talk about fuel, from both an availability and price standpoint, and then US and Canadian dollar currency differentials and hedging
and futures and shifts that take place in such short time frames, it’s pretty hard to do an ROI on
any technological investment over 5 years. Quite frankly, I don’t know if you can plan beyond a
year or even 90 days. When you look at your fleet size now and what your footprint is going to
be 24 months from now or 4 years from now and you’re trying to purchase equipment on an
operating lease and amortize the expense over 4 or 5 years, how can one be so confident that by
the end of that time their business will look like it does today?
MT: Doug, do you agree with that? Is the volatility of the current situation making it more difficult
to consider technology investments?
Munro: I think it is, especially carriers that are doing transborder. They are struggling right now
and they may hesitate to spend money on technology initiatives but there is certainly a movement
that is driven by the market in terms of customers wanting online proof of delivery, track and trace,
etc. Efficiencies that are gained from having those are pushing that irrespective of how we are doing
as carriers. Personally I think we have to continue with those initiatives.
MT: Let’s assume we have a nice and easy to read market place with little volatility. As a carrier,
which technologies make the most sense in terms of making for a more efficient, better run company?
Munro: We’ve been putting in some new operating software to be more efficient in dispatch.
We’ve also been doing some testing on an RFID base for LTL freight through our crossdocks.There
are a lot of efficiency and tracking issues that are overcome by that technology and make it costeffective to implement, although we are just at the beginning. LTL carriers are having to become
like couriers in terms of having track and trace and other functionalities online.
DiTecco: The one thing we haven’t been able to do is convince customers to do what they do with
couriers and that’s fill in everything, send it electronically and save all the time and effort associated
with paper processes.That’s one of the areas that certainly can and should be improved. Enter the information once. Most of us right now are having to enter it 2 or 3 times and so there is greater potential for error. I know entering such information in-truck has been around a long time for long haul
carriers but if short haul LTL carriers can start the billing process when we are picking up the freight
it would certainly help us be more efficient.Also, with all the onboard, in-truck information coming
back to either your driver trainer or dispatcher,you have more control over how you are running equipment on the road. We’ve trained our drivers to behave in certain ways but with the technology we
know that it’s happening and there are fuel savings and safety benefits we can tap into.
Smith: I had a major customer a few years ago say that moving the freight is a given, but how
do you move the information? That’s really what we are talking about – what’s the most efficient, streamlined way to move information? That ties you in with your customer and addresses the expectations they are looking for. It also somewhat tiers the market place.
MT: Larry, when you are looking at carriers to determine which ones to use and considering their technology capabilities in the process, which technologies do you want your carriers to have invested in?
Jensen: The one thing we would all like to see is more environmentally green tractors but I can
understand now may not be the time to do that.We need better times to go down that road. From
a technology standpoint, the EDI tool focus on transferring information from the shipper to the
carrier makes so much sense from an accuracy standpoint and a cost standpoint. It’s something
we have not pushed historically but something that should be in the forefront. On the other end,
I do feel that the LTL carriers are behind in terms of live capture of PODs. That’s an area where
they should develop their technology capabilities because I’m dealing with carriers that have a
pool of 70 customer service reps taking phone calls and tracking and tracing shipments and relaying information for standard, easy-going PODs. The more access that the carrier can give to
live POD statuses, the smaller pool of customer service reps they’ll need and they can work on
MT
pushing freight through the system, not just turning over a valid POD from a month ago.