Inbound Logistics Trucking Perspectives 2007

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An in-depth look at motor carriers and their customers.

Having options is always a good thing. And in today's domestic freight fray, over-the-road shippers, more than anyone else, understand the importance and value of building flexibility into their networks to accommodate expected and unexpected fluctuations in customer demand and carrier capacity.

Given the past difficulties of finding space and managing freight costs, transport buyers rely on motor carriers and third-party intermediaries to extend operational flexibility beyond the loading dock.

A softening market, however, due to a downturn in the U.S. housing market and growing consumer pessimism has resulted in a surplus of equipment and capacity and decreasing consumer demand.

And now, U.S. shippers are grateful for the opportunities and options they have available, as they become more judicious and strategic in selecting carriers and negotiating rates.

For the time being, this buyer's market is also forcing motor carriers to further accent their value and enhance their value proposition by investing in and developing innovative services and technologies to best serve both their core interests and customer demands.

To give definition and shape to this shifting market, as well as a roadmap for where carriers are taking shippers and where shippers want to go, Inbound Logistics presents a two-tiered approach: our Motor Freight Market Insight Survey (MIS) and our annual Top 100 Motor Carriers list. The Motor Freight MIS captures the perspective of both shippers and carrier interests.

First we polled motor freight carriers to see how they are expanding their service portfolios, geographical coverage, and IT capabilities to anticipate and meet the unique and diverse demands of their transportation customers.

Second, we canvassed the shipper community, asking them to identify and comment on the challenges they face in today's market, as well as the opportunities that have surfaced in a buyer's market and how they are harnessing their carrier and intermediary partnerships to drive transportation innovation and efficiency within their respective enterprises.

Complementing this end-to-end panorama of the U.S. domestic freight market is our annual Top 100 Motor Carriers list.

This in-depth "who's who" database of U.S. over-the-road freight carriers presents a snapshot of the industry's leading players, as well as a benchmark for the services and capabilities transportation buyers need to consider when looking for new partners or evaluating current ones.

Carrier Perspectives

Concurrent with last year's data, shippers continue to dictate how carriers go to market and expand existing service portfolios with innovative technologies, logistics capabilities, and new coverage areas.

Unlike 2006, however, motor freight companies have considerably less leverage passing along fuel surcharges and other operating expenses to their customers.

As a result, over-the-road carriers have been looking to expand their businesses. Across the board, an overwhelming majority of trucking companies indicate they increased sales—48 percent show an increase of five percent, and 26 percent show an increase of 10 percent.

Freight carriers are expanding their sales initiatives by targeting new customers, with 70 percent indicating they grew their client roster by at least five percent.

What is striking, however, given the efforts carriers are making to sell their services to new customers, is how little they are recouping in terms of net profit.

The costs of operating in a soft buyer's market, and increased competition among carriers, resulted in a considerable discrepancy on the balance sheets—only 16 percent of respondents indicate revenue surpassing five percent, and a whopping 63 percent report break-even numbers or profit loss.

Carriers cite myriad reasons for these increased operating expenses, with 74 percent indicating "rising driver-related costs," 79 percent saying "price pressure from customers/competition," 53 percent citing "rising fuel costs," 53 percent noting "increasing insurance costs and liabilities," and 21 percent saying "new equipment mandates."

That carriers face increased pressures from competitors is quite clear, but smaller players with less clout are finding the marketplace especially difficult to navigate.

Smaller carriers and owner operators have traditionally had less leverage passing along fuel-related costs to their customers. In today's marketplace and unlike their customers, they have even fewer options.

When capacity was lean and truck rates were high, shippers invariably played the "partnership" card to facilitate and manage these difficulties.

But now that capacity is flush, they are turning to the carriers that offer the lowest rates—which places additional pressures on smaller players without the critical mass and leverage of big carriers.

As one trucking company executive commented: "Freight levels are the lowest we've seen in years. It's just not there."

While pricing has become increasingly important to savvy shippers, carriers are perhaps challenged even more with expanding their value proposition beyond the norm.

For trucking companies that are specifically trying to keep current shipping clients happy, the need to grow and expand service offerings is obligatory.

To point, 81 percent of carriers polled provide truckload services, with nearly half offering LTL competencies as well. As the difficulties in managing end-to-end supply chains become more challenging to shippers, carriers are developing their capabilities beyond just transportation.

Value-added offerings such as logistics services are increasingly important to logistics-savvy shippers and consignees, and carriers are meeting the challenge, with 64 percent reporting capabilities in this niche area.

The obstacles of operating in a global marketplace, specifically the demand placed on businesses in the last few years to find alternative strategies and means to deliver product reliably and economically, has forced motor freight companies to expand their service offerings in niche transport responsibilities as well.

Shippers are turning to intermodal solutions, mixing rail, road, and water services where possible to achieve better value. Carriers are responsive to these needs, with 41 percent providing intermodal capabilities.

One way carriers offset pricing pressure is to leverage their IT capabilities to enhance value for existing and prospective customers. Transportation buyers understand the pricing pressures trucking companies face with increased competition, but will still want more "bling for their buck."

And given the democratization of Internet technology, small and large carriers alike can leverage savvy investments in communication and data capture hardware and necessary back-end systems to interface with in-cab systems and create a better network for sharing and communicating real-time shipment data.

In terms of communicating with truck drivers, cell phones are all the rage with 81 percent of respondents reporting their use, while satellite text (61 percent), cellular text (38 percent), and satellite voice (17 percent) follow suit.

For capturing data and tracking shipments, 68 percent of carriers report using satellite devices such as GPS units, while 43 percent rely on cellular phones, and 17 percent and 6 percent, respectively, leverage bar codes and RFID.

The growing acceptance and use of satellite-based technologies means carriers can convey mission-critical information to shippers and consignees from nearly anywhere in the United States.

And transportation buyers are increasingly demanding carriers provide them with regular updates on shipment status, exceptions, and delivery confirmation—75 percent of carriers indicate sending e-mail alerts to identify freight status.

This means that motor freight companies also need to have sufficient Web-based capabilities that allow customers easy access to important shipping information and resources.

According to our polling, 76 percent of carriers offer Web-based track and trace capabilities; more than half provide activity management reports and online claims filing; and 44 percent have pricing and routing information on their Web site.

Following on a trend seen elsewhere in the logistics and transportation sectors, carriers are still overwhelmingly wary about investing in RFID technology, with only 11 percent of respondents acknowledging support and competency at the SKU level, and 42 percent reporting that it was a future initiative.

By contrast, 31 percent of carriers offer bar-code support, and another 31 percent indicate they intend to offer capabilities.

If shippers continue to warm to RFID technology, which industry pundits have been speculating about for some time, carriers may be equally cautious about investing in an emerging technology and a potentially obsolete one.

Carriers ultimately go where their customers go, and as globalization continues to place additional pressures on inbound specifiers, U.S. consignees have increasingly looked north and south of the border for cheaper and more reliable options to move product inbound from Asia.

As a result, the importance of coordinating freight transportation between Canada, the United States, and Mexico has only increased.

Among carriers surveyed, 32 percent operate throughout North America, with 35 percent serving the United States only, 25 percent targeting the United States and Canada only, and 1 percent offering service between the United States and Mexico only.

Compared to past years, there appears to be more parity among carriers serving these niche geographic regions.

Of the surveyed carriers who serve the United States only, 58 percent offer truck services nationwide, while 29 percent and 13 percent provide regional and multi-regional coverage respectively. Seven percent report international coverage.

Shipper Perspectives

While transport buyers may have the flexibility of being more discrete in how they vet prospective carrier partners, they, too, face increasing pressures from shareholders and customers to grow market share and enhance service requirements.

With consumer demand waning, shippers need to be even more adept at integrating domestic demand chains with offshore supply networks and finding carriers capable of going the last mile and the extra mile.

Over the past few years, increasing costs and lessening capacity demanded shippers work more collaboratively with their carriers.

Transport buyers invariably had two options: either develop better working relationships with their partner carriers, or find brokers capable of managing negotiations and arrangements on their behalf.

Perhaps resisting the urge to add another link in the domestic chain, shippers overwhelming value direct communication with truckers, with 63 percent of respondents reporting their relationships with carriers are most important, 32 percent indicating their relationships with broker/intermediaries and carriers are equal, and only five percent siding with brokers/intermediaries exclusively.

Value-added services carriers offer also strengthened customer relationships.

The Value of Relationships

Still, even with a soft market, freight transport buyers find value in third-party relationships that many entered into when capacity and cost constraints began impeding their own ability to properly handle transportation management responsibilities in-house.

Seasonality and demand-driven dynamics inevitably require a benchmark to be effective and ensure that the customer is getting the appropriate value for level of service rendered.

Smart shippers are bound to keep and maintain relationships with brokers and intermediaries even during flush times.

There is similar efficacy, now that freight volumes have lessened, to leverage brokers to pick up backhaul capacity in markets where there is a considerable imbalance in inbound and outbound freight moves.

Carriers, in turn, are helping shippers maximize their networks by working more closely with them to share gains.

Clearly, carriers that are unable to live up to quality and service requirements are in a much more vulnerable position than just one year ago when customers had less leverage finding space.

To point, in 2006, less than 40 percent of shippers polled acknowledged switching carriers. This year, 43 percent reported changing carrier partners.

In a soft market, pricing can be a determinant, especially if a buyer is diligent in the rate negotiation process. Some of this discrepancy can be attributed simply to natural movement in a loose market.

But carriers today are equally cognizant that any failure to meet agreed-upon shipment deadlines could also contribute to a lost contract.

Among shippers that dropped carriers for new ones, 50 percent cited service issues, 40 percent indicated price considerations, and 10 percent went looking for more reliable capacity.

Shippers identified numerous reasons for switching carriers, including:

  • Failure to live up to contract terms and insufficient supply.
  • Inability to make pickups on a regular basis.
  • Better capacity and pricing opportunities.
  • Continuing need to improve core carrier group.

When asked what would be the "last straw" that would make them consider dropping a carrier, shippers were mixed in their responses.

Among their reasons: multiple instances of service failures, overbooking capacity, "back selling" their customers, and damaged goods.

As these comments suggest, shippers by and large still value service and quality over cost because ensuring a product is always delivered on time is difficult to place a value on.

For some savvy shippers, now is also the time to reevaluate logistics and supply chain strategies, and leverage carrier partners and their capabilities to facilitate this.

By example, a flush market presents an ideal context for shippers to master control of their inbound logistics processes, unbundle freight that vendors control, save money, create even more options, and ultimately harness greater control over transportation management processes.

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