Back from a hectic week that includes a couple of excellent days at the JDA Software User’s Conference (see nearby blog entry) and then on to the NASSTRAC conference in Orlando.
NASSTRAC, for those who don’t know it, is an association for transportation professionals. I am sure “NASSTRAC” is an acronym for something, but if I once knew what that was, I don’t any more. It had been a number of years since I had been to the NASSTRAC conference, but when Dr. John Langley of Georgia Tech asked me to moderate a panel this year, I happily agreed.
I was just there for a day, but it was a good one. Below, I will summarize and highlight content from key sessions.
"NASSTRAC really offers a great forum for shippers. More companies should take a look at it."
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The main takeaway – whatever benefits logistics professionals have seen from the falling freight rate environment over the past couple of years, there are a whole host of other issues and challenges here and on the horizon.
Lowe's was named NASSTRAC’s “Shipper of the Year.” Accepting the award, Rob Long, Director of Transportation Development, said the key to Lowes’ logistics success was “all about building the right culture and embracing change,” citing Transportation VP Steve Palmer’s role in making that happen within Lowe's.
I also found this interesting: Long talked about the “passion” that transportation professionals have for their craft.
“Everything we do, we do from the heart,” Long said, speaking not only for Lowe's, but for transportation professionals everywhere. You know, I hadn’t really thought of it, but there is a lot of passion amongst transportation managers, maybe more so than in any other area of the supply chain. I wonder how many marketing and sales managers really understand and appreciate that?
A panel discussion on “intermodal” covered that topic, but a host of other issues as well.
Derek Leathers, COO of truckload carrier Werner (which has a growing intermodal business), was especially outspoken – but on point.
With regard to intermodal generally, Leathers cited a maxim that a former mentor had taught him many years ago: “Freight will ultimately find its most efficient path – don’t fight it.” He said “multi-modal really is the future of our company.”
He also said that building the right logistics network and modal strategy will have an impact “10 times” of what can be achieved through hard-ball rate negotiations.
There are many providers, as well as shippers, that attend NASSTRAC, and the issue of “rates” was a constant theme, formally and informally. I overheard one analyst talking to a carrier about rates “stabilizing” right now, and the carrier’s response was “I don’t need them to stabilize – I need them to rise. I lose money at these rates.”
“Unfortunately, in this environment, the concept of economically-sustainable solutions has gone out the window,” Leathers noted. He said in the past 3 years, average TL rates have gone down 6.5%, while costs have gone up 8%.
“Yet, here in 2009, you see article after article about shippers looking for double-digit rate decreases. That is simply unsustainable for the industry, and will have to change,” he added.
While there is abundant capacity right now in all modes, just what does the future hold?
Leathers said that for truckload transport in 2008, 7.5% of market went bankrupt or left the market; another 7% of capacity left through fleet shrinkage in the surviving carriers. But because demand was off 18%, shippers haven’t noticed – but that day or reckoning may be coming sooner than we realized.
In the Wall Street panel discussion I hosted, Jon Langenfeld, a transportation industry analyst at Robert W. Baird, said it looked like only 70-75,000 class 8 trucks would be procured by US carriers this year – versus a normal expected need for 220-230,000 as pure “replacement” units.
This lost capacity everywhere is setting the stage for a possible fast and steep surge in the other direction when the economy recovers, several observers noted at the event. John Larkin of Stifel, Nicolaus & Co., the other member of my panel, cautioned shippers to be somewhat modest in playing the rate game right now.
That is not only because prices have reached unsustainable levels, but because “many shippers have burned bridges with their carriers as a result of price actions in the first half of 2009,” Larkin said. “Expect the favor to be returned in those cases when the supply-demand environment changes.”
Larkin also said that a huge additional swath of capacity could leave the market rapidly. Many financially troubled carriers for now have not been forced into bankruptcy by their lenders, in part because of the low current sell-off value of the assets that secured the loans. If the banks take a hard-line approach, however, and force many carriers under, it could accelerate the change in the supply-demand equation that almost everyone predicts.
A panel of shippers was also interesting. Much more was discussed than we can cover here, but I will note some highlights.
Steve Ahern of chemical giant BASF noted his company’s interesting transportation strategy. In North America, it has recently developed a series of third-party managed “command centers” – with a focus by mode. So, there is a “command center for rail,” for truck, ocean, etc., that centrally manages that transport across BASF’s 15 business units.
Separately, there is a transportation procurement organization that sources carriers across all modes and manages the contracts. As part of that effort, BASF is like a number of industrial companies that are starting to take control of inbound freight. Key to that change, in part, was changing performance metrics for buyers and also jointly looking at order patterns to better understand how those impact transportation costs.
Unlike many retailers, PetSmart is tying to look at achieving the optimal inbound strategy, said Carol Beaumont, director of supply chain operations. While most often, PetSmart will take control of inbound, in other cases, they determine having the shipper leverage its assets or volume in a lane can be the best total supply chain choice. My experience is that few retailers look at the total picture. PetSmart is also looking to improve inbound visibility, after having made great progress on the outbound side.
My friend John Cutler is the legal counsel for NASSTRAC and other supply chain organizations, as well as individual shippers. He gave an update on actions in Washington that could impact shippers – and it is quite a list. We will summarize this in more detail in an upcoming piece in our On-Target e-magazine, but several points are worth noting here.
For rail shippers, Cutler says the Surface Transportation Board is becoming more shipper friendly than it has been for many years. He expects the bill to revoke the rail anti-trust legislation to pass easily – though what this ultimately will mean is not clear to me. He also expects successful action on the so-called “bottleneck” legislation regarding how rates are determined when part of a full move is served by only one rail carrier, but says it is possible that carriers and shippers may work something out themselves first.
To pay for all this planned infrastructure spend, Cutler expects we will move to a Vehicle Mile Tax (VMT), and perhaps after that a variable VMT, based on time of the day, congestion, etc. In total, this could add up to a significant cost increase for shippers.
There are also competing bills regarding truck capacities. One bill (SHIPA) would mandate a freeze of current limitations and extend them to new roadways. Another would actually increase the maximum weights – it has been introduced by a congressman from Maine, which it turns out allows gross vehicles weights of up to 100,000 pounds right now.
I wish I had more space. We will delve into some of these topics in more detail in On-Target soon. As I discussed with SCDigest reader Terri Ferraro of Famous Footware as I was walking out the door, NASSTRAC really offers a great forum for shippers. More companies should take a look at it.
How do you think the current rate environment will play out? Is it smart or not to beat up the carriers even more right now? Do you think capacity will swing in the other direction – and if so when? Any other comments on our NASSTRAC summary? Let us know your thoughts at the Feedback button below.
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