November 2006 | Commentary | Carriers Corner

Carrier Challenges Are Your Challenges, Too

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One attractive component of the logistics industry is the variety of problem-solving opportunities it offers. Currently, inflationary costs pressuring carriers is the biggest problem-solving opportunity in the supply chain. The entire industry is wrestling with this challenge—and will be for the foreseeable future.

Discussing the prospect of ongoing cost escalations is a challenging conversation to have with shippers right now. Record fuel prices and the budget-busting surcharges that go along with them make these discussions especially daunting.

If you're a shipper charged with finding capacity, you do not have a fun task. The sales side of your organization probably isn't thrilled with service levels hampered by capacity shortages, and the financial gurus aren't content with the level of spend compared to years past. It's a classic no-win situation, and the future may not provide any relief.

Consider these major cost components impacting carriers:

Driver labor, benefits, and recruiting costs will not recede as long as we need more drivers.

Equipment costs will continue to rise appreciably, driven by the latest EPA emissions restrictions. Besides their increased acquisition costs, the new tractors are less fuel efficient, more costly to maintain, and still have an uncertain shelf life. This is the opposite of what the industry experienced for decades, when more efficient equipment was introduced year after year.

With another round of heightened EPA emissions standards scheduled in 2010, equipment suppliers are spending their time, energy, and research dollars working on compliance, rather than efficiency.

An uptick in the price of raw materials has resulted in cost-per-trailer increases that are greater than truck increases on a percentage basis.

Security and compliance, especially since the Sept. 11 terrorist attacks, have also impacted expenses. An increase in secure facilities, extensive background checks, and technology proliferation make the transportation environment safer, but more expensive.

Reduced productivity—measured in miles per truck—which nearly all truckload carriers are reporting, may be the most troubling issue of all. Many factors have contributed to this situation, including traffic congestion, more home time for drivers, and, of course, the revised hours of service (HOS) rules.

In addition, the onset of electronic on-board recorders marking every minute of time isn't likely to help productivity, even if it's absolutely the right decision to support safety concerns.

Increased input costs used less productively cause problems for both shippers and carriers. This trend represents a reversal of the historical trend of lowered costs, which have been a hallmark of the U.S. transportation system.

Focus on Collaboration

If you're in charge of buying trucking services in this environment, how can you get the job done while limiting budget woes?

Collaborative initiatives to increase carrier productivity provide the best opportunity to keep cost increases at bay. This topic gets a lot of lip service, but a direct correlation exists between efficient supply chains and spending, especially today as carriers employ sophisticated technology to capture and assign costs to the least productive shipments in their networks.

Here are some specific strategies for collaborating with carriers:

Increase dock productivity. Keeping drivers and equipment moving is a basic rule for any efficient supply chain, but it's amazing how much money and time shippers waste moving shipments the last 53 feet of their journey. In addition, driver issues become exacerbated when drivers are delayed and/or treated poorly, which can lead to increased turnover.

Be mindful of trailer utilization. Trailer-tracking systems are becoming more prolific, enabling increased scrutiny in this often under-managed area. Keeping trailers sitting in pools at an excessive level, or not turning them over efficiently, wastes money.

Capture the inbound from the purchasing department. This is Supply Chain 101, but it's astounding how many Fortune 100 companies still can't wrest away control of shipments inbound to their facilities.

Use the clock. To a large extent, shippers that operate around the clock are delivering to receivers who take product only eight hours per day, five days per week. This obviously causes equipment tie-up and handoffs, which are both bad for expenditures.

Be flexible. More than ever, carriers need scheduling and transit flexibility. The new HOS rules make absolute transit times nearly impossible because a driver can't bank hours waiting to pick up or deliver goods. Open pick-up and delivery windows will be increasingly important to keep assets rolling and utilize drivers' precious time.

While we may experience the usual ebb and flow of capacity availability in the coming years, the incessant drumbeat of escalating costs is not likely to abate. Therefore, it is incumbent upon everyone with a stake in this vital part of the economy to use these ever more expensive and precious resources as cost effectively as possible.

We all need to embrace creativity, partnerships, and hard work to overcome the challenges ahead.

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