Ben Cubitt From Transplace Interviewed - What Do Carriers Look For in A Shipper

Ben is a very smart person and has been doing this a long time.  However, this is another, yet again, "shipper of choice" interview.  Some good points are made so I thought I would share it.  Although, I must admit, I have no idea what a "fair" rate is especially as it relates to fuel surcharge.  Shouldn't a fair fuel surcharge be to just pay what the fuel costs?

FTR Responds to 10xLogisticsExpert - Are We Driven by Fear

You may have read my blog posting Another Summer and More Fear from FTR.  I am happy to link back to the thoughtful and well written response from Jonathan Starks on the FTR Blog entitled "Are We Driven by Fear"?

First, he is right, I read a recap and did not listen to the entire webinar so today I went back and listened to the entire replay.  My opinion does not change and here is why.

 The point I was making in my post is threefold:

• FTR and the "industry" very frequently report "now it is soft" but they predict "sometime in the future" capacity will tighten up and rates will spiral up. (This was exactly the position taken in this webinar)
• They talk about it as if it is very homogeneous when really it is a lane by lane, area by area phenomenon. 
• The carriers use this "in the future" research to spin their sales pitch.  Any shipper knows the pitch goes something like this:

Shipper to carrier:  "Wow, seems real soft now and rates have come down in the spot market (per FTR), what can you do to help lower my contract rates?"

Carrier to Shipper:  "Well, yes, may be down now but look at the research (provided by FTR and others), capacity in 2016 is going to tighten dramatically and when that happens rates will spiral up. You, the shipper, need to stick with us now (maybe even give us a cost increase) and we will "stick with you" when spiraling rates occur. 

Now, what comes of this:

1. Shipper gets scared (thus the fear trade).
2. Shipper pays more now as "insurance".
3. The "insurance" never pays off (either the spiraling rates never occur or if they do, the carrier is still back at the table asking for more money). 

OK, so why am I so skeptical of this scenario?  It is really all about who the clients are of any consulting organization. I do not believe you can serve two masters .. absolutely impossible. Yet, some consulting companies try to do this.  Imagine this scenario:

Consulting company "A" gets 50% of their revenues from the carriers and is about to go to market with the following research: 

1. Trucking capacity is loose and rates have softened dramatically
2. This is going to exist into the foreseeable future.  We are "long" on the recovery and all indications are a recession is upon us (commodities are slowing, etc.).
3. Shippers should use this as an immediate opportunity to ask for rate reductions to stay competitive.  Prices are about to fall.  

What do you think would happen to the "50%" of the revenues that are paid by trucking companies?  I will leave you to answer this question. 

I want to be clear: I think FTR produces the best research in the industry and it is a "must" listen to and a "must read" for anyone dealing with the shipping industry.  

I am merely saying you need to combine this with other research and, more importantly, what you are empirically seeing in the marketplace to determine your overall transportation procurement strategy.  

NOTE:  My comments about "serving two masters" are the whole idea of where the fiduciary responsibility lies.  Think of your investments.  If your investment advisor is paid for, in some part, by a specific mutual fund do you think that investment advisory can truly be "neutral" and "agnostic" in his or her advice?  Again, I leave it to you to answer.  

DOJ Investigates Airlines - Are the Trucking Companies Next?

A while back I wrote about how I thought executives in the trucking industry were getting dangerously close to collusion as they discussed capacity in the industry.  My comments were around a concept of "signaling".

I am not a lawyer and do not pretend to be one but "signaling" is when one company sends a signal to the other about its intents in terms of key actions effecting pricing.  So, for example, an executive says in an interview in a prominent industry magazine something like, "Until we see better ROI we cannot and will not add capacity to our system".

Ok, what just happened?  He essentially told his competitors two things which normally a company, especially a private one, would want to keep private.  He (or She) said:  "I am restricting capacity and raising rates".   Now, the executive on the other end knows he or she can do exactly the same thing and voila!  you know have thinly veiled collusion.

See the graph below, from the article cited below, which displays the profitability of the airline companies who publicly "restrict capacity":

I was thinking about this yesterday as I read in Bloomberg BusinessWeek an article about the FTC complaint against the airlines entitled "What Does it Take To Prove Airline Collusion"?  The core of the matter is what they call "unlawful coordination". A line from that article:

"A trigger may have been the June meeting ... where airline executives talked openly about 'capacity discipline', a not so subtle code for limiting the number of seats available" [My comment: thus increasing prices] (Bloomberg Businessweek, July 20, 2015)

It went on to say the following:

"At a press conference, Delta President Ed Bastian said his company is "continuing with the discipline the marketplace is expecting".  American Airlines CEO Doug Parker told Reuters it was important to avoid over capacity: "I think everybody in the industry knows that." (Bloomberg Businessweek, July 20, 2015)

 Does any of this sound familiar to the shipping community out there?  The DOJ has never really looked at the trucking industry because it was so fragmented.  However, is is becoming very consolidated at the top with the top 5 or 10 carriers commanding a huge market share and, of course, if you are a very large shipper, about the only carriers you can use are the very large ones.

At least we have come a long way. Businessweek recounts the following from 1982:

"Robert Crandall of American Airlines told the CEO of Braniff Airlines, Howard Putnam, 'I have a suggestion for you. Raise your goddamn fares 20%. I'll raise mine the next morning. "

While doing what is right for drivers and treating people right is the right thing to do (the infamous "shipper of choice" debate),  I really think shippers should be far more concerned about this.

Upcoming Conferences - Opportunity to Connect

I will be attending the following up coming conferences and look forward to connecting!


CSCMP Annual Global Conference - Sept 27 - 30, 2015
https://cscmp.org/annual-conference

MHI Annual Conference - October 4-6, 2015 (I will be part of a panel titled "The Impact of Automation on Global Supply Chains)
http://www.mhi.org/fall2015/index.cshtml


Look forward to catching up with you all!

The Hoax of the Gartner 25

First, full disclosure:  I am a big fan of Lora Cecere so understand I almost always think what she says is big news - I have been following her since her AMR days.  Now, having said that, she posted an extremely interesting blog post entitled "Don't Perpetuate The Hoax of The Gartner 25" that is well worth reading.

In fact, I will summarize but clearly you need to go to the post to read the entire entry. 

Back when this started, I was actually on the board that voted (AMR days) and I always thought it was moving towards what Lora calls a "beauty" contest and now I believe it is fully just that.  Most of it is about brand name recognition.  After all, how could a company that so misses demand projections that their new products are unavailable be in the top 25 (Apple) unless it was just brand recognition.

I agree with Lora, to really rate supply chains you have to look at the detailed figures and facts and let the data speak. As she cites in the post, performance + real improvement (in a measurable way), is what should drive the top supply chains.

Go to her blog and give it a read for yourself!

A More Thoughtful Article on Capacity

This, from BCG, is a much more thoughtful article on the true capacity issues in transportation.  The issue is NOT trucking capacity as that can easily be solved with private fleets, some technology, moving DCs to more efficient locations etc.

The real issue is around port capacity, rail capacity, infrastructure and consumer demands.  These cannot be moved around.  And this is what companies have to be thinking about now assuming they want to stay around.

What the trucking companies ignore is the demands being put on transportation are due to rising consumer demands - the demands are not just created by the shipper for the heck of it.  My advice is shippers really need to think more about private fleets.  You can be very competitive, get higher loyalty from the employees and be far more nimble.

Don't Be Fooled Again..

For those who read my last post and are not sure it is true, I refer you back to the post from November 7th, 2013 titled:  "The Fear Trade Picks Up Steam... Don't Be Fooled".   Same story from the carriers and the "analysts" (who mostly are just talking their book) just years ago. 

And, since it is starting again, I think a great rendition of "Won't Get Fooled Again" is in order:

Another Summer and More Fear from FTR

It is like clockwork.  I can set my watch by the articles that will be printed by the logistics' press such as FTR.  Here is the story of the "study" (it has been the same for 5 years):

1. We thought prices would be a lot higher than they are
2. Freight is softer than we thought

BUT.....

1. Watch out, it will tighten soon
2. Give in to the demands of your carriers as they try to get you to "pre-pay" for price increases.
3. Those who do this will be rewarded...

And of course my response continues to be the same:  Prepaying for tight capacity is a waste of money.  Those who followed this course 3 to 5 years ago have paid a lot of money for a day that still has not arrived.  

Actually, you should follow the direction of the executives running these companies:  They essentially say when capacity is tight, rates go up and when capacity is loose rates go down. That is the ultimate definition of a commodity.  So,  therefore, treat it that way.  

Is Being The Shipper of Choice a Rational Buying Behavior?

I once again had to sit through a "shipper of choice" meeting with a carrier and I was as disappointed as I am with every one of these I attend.  First, congratulations to the consultant who coined this phrase "shipper of choice" - you have done a great job peddling this idea and I hope you have made a lot of money with it.  Every presentation I go to is the same so I have to believe they emanate from the same person.

For those who have not been "blessed" by one of these presentations, let me walk you through what they mean.  In a nutshell it is:  "If you (shipper) do everything in the way we want it done, regardless of what your customers want, then you will be a "shipper of choice".  Things such as:

1. Pay your bills on time
2. Give the freight the carrier they are awarded
3. Perfectly forecast the freight
4. Pay above market (or what the carrier will call "fair") rates
5. No window times for deliver - let the carrier deliver and pick up at their leisure
6. Have a luxurious wait room for the driver
7. Don't have the driver do anything when he shows up

Well, you get the feeling. 

What is missing from all of this is what does the CUSTOMER really want?  I raised this question to the trucking company and, honestly, I am not sure they ever had thought about this.  I mentioned to them that we (the shipper) are not the ultimate customer.  We have customers (call them consumers) who are demanding certain things.  We are looking for the freight provider to partner with us to fully understand and respond to what the consumer wants (which, as I pointed out to them, is what each of us wants as a consumer).  So, what does the consumer want:

1. Short order to delivery times
2. Windows (anyone want to sit at home all day waiting for someone or do you want to know that they will come within a two hour window)
3. Be market competitive in pricing
4. Full delivery (White glove).

These are what the consumer wants and these are not things that are being put on the logistics network for any other reason then they are customer demands. 

Of course, there are things that make sense and should be done:  Pay bills on time, if you award the freight give them the freight etc. 

But this idea that we can ignore what the end consumer wants is completely ridiculous.  The challenge for us the shipper and the trucking company is how do we meet these complex and ever increasing demands AND be efficient. 

I wonder when that meeting will occur?