The Highway Bill - Is it Re-regulation in Disguise?

For many who have read my postings you know I personally believe there is a quiet re-regulation of the transportation (mostly full truckload) industry going on in the United States.  Interestingly enough, this is mostly being led by the trucking companies themselves both indirectly and directly.  As regulations have increased the profitability of the trucking companies has increased as well.  It is as if they all just decided competing in an unregulated and highly efficient market was just too much to take.  It is easier to publish a unified tariff and move on.

A stark example of this is in the new highway bill.  In an article written in Logistics Week Bill Graves, the ATA President hails this bill for doing the following:

• Requiring electronic on board recorders for hours of service compliance
• Establishing a central clearing house for Drug and Alcohol testing
• Establishment of standards for systems to provide employers notification of moving violations
• Mandatory testing of new carriers coming into the business around safety (Read: Increase the barrier to entry)

There was a day when any transportation executive would be appalled at the above mainly because it increases regulation, decreases competition and creates barriers to entry to the industry.  This will all result in bad news for shippers as the carriers will use these "new regulations" as an excuse to raise rates.  The savvy shippers will remember who actually put these regulations in place in the first place: The trucking industry. 

One thing the new Highway bill does not do:  Fund infrastructure repairs so our roads and highways become less congested and more conducive to transportation. 

Next up I will deal with how this is being paid for and here is a little hint:  If you think you are getting a defined benefit pension plan, you just contributed!

Impact of Mega Trends - Design for Logistics

As transportation rates and capacity go through a major change one trend which is clearly developing is what I have called "Design for Logistics".  This "mega trend" ensures the logisticians are involved in the design of the product at the very early stages of development and the reason for this is mostly cube utilization.

We have known for quite some time a critical way to reduce spend is just to consume less.  Seems very logical to me and really passes for being a truism in our industry.  However, what has not happened until recently (on a large scale) is people thinking about this before the product is actually designed and built.  As we all know, once the tooling is in place to make the product the goal of the manufacturing group is to run the tool to death; at that point a change in design becomes very costly and almost impossible to execute.

The solution therefore is to get the logistician involved on the front end.  Of course, we do not want to build any "Aztecs" here (really ugly products which were made ugly to make manufacturing and logistics more efficient).  First and foremost, the product has to meet customer needs and, in most cases, actually "wow" the customer.  However, once we identify the critical components of the product which create that emotion with the consumer, we then take the rest of it and design the hell out of it for efficiency in logistics. This usually means cube utilization.

I heard a high level executive for a major truck stop firm say his fuelings were down by 15% and he was attributing it to more "stuff in the back of the trucks" and therefore less trucks.  I am not sure he had real data to support it however given my experience I believe he was right.  And this trend will continue.  The logical and ultimate conclusion is to eliminate shipments completely (aka, Nook/Kindle e-books and iTunes stores).  We know not everything can be digitized however things can be made smaller, packed tighter and assembled at the point of use versus at a factory (Think IKEA furniture).

If you have not instituted this process in your company, and transportation costs are meaningful to your business, you should immediately think about this important topic.  It is far more complex than I have written here and there are clearly ways to be successful at this and ways to screw it up however you should start it now.

The EPA May Have Got it Right

For the last 4 - 6 years we have heard many people grumbling about the need to clean up diesel trucks from an environmental  perspective.  All the same arguments heard whenever new goals are set were rolled out:  "It will cost a fortune", "It will never work", "The technology doesn't exist"... etc. etc.  Same comments made by the automotive companies when the initial clean air act was passed and now we hear them again when it comes to Natural Gas. Now, in an article entitled, The Emissions Dividend in Fleet Owner Magazine, we find out the EPA may have been right.  Thank goodness they stuck to their guns.

What is even more fascinating about the data in the article is it seems to suggest now that all these changes may actually end up in reduced costs for the carriers.  Engines are lasting a million miles, drain intervals are being extended  and other operating costs are improving.  Yes, the acquisition costs of the engines may be higher but it appears there is evidence the total cost of ownership (Generally figured by adding: Acquisition costs+ownership cost-residual revenue) may actually be lower.  It is certainly improving and this is verified by a presentation I was at where a very large trucking company confirmed this phenomenon.

As a shipper it has to make you wonder what all this talk is of "increased costs"?  Yes, there are increased acquisition costs but it is TCO I am concerned about.  If TCO is decreasing that is a good thing isn't it.

This reinforces why, as a shipper, you have to understand the costing model of transportation as well or better than anyone in the industry.

Could you imagine what LA would be like from a smog perspective if the EPA had not stuck to its guns all these years?  It would have been a disaster.  Now, it looks like the same success is coming to the actions concerning diesel trucking.  Congratulations EPA... and my future grandchildren thank you.

Sustainability - Why Not?

I had an interesting revelation today as I drove my hybrid to work. Many people will rationalize why they are not living a sustainable life - leaving a better planet to their heirs than they gained from their parents.  They will go through the "personal business case", they will try to deny the science of the changing planet or, some, will hold onto a belief that it is our God given right to do whatever we want to the planet.

Of course, all of those are what we call excuses and rationalizations.  My observation is many who do not care about sustainability are the exact people who can afford it and are benefited by it.

So, next time you rationalize your unsustainable behavior ask yourself, why not?  Why not take the few extra minutes to recycle?  Why not spend an extra $1K to get a sustainable automobile?  Why not buy local so things don't have to be transported so far.. etc. etc.

The key question for all of us:  Why Not?

Leadership in Logistics is As Important as The Technical

I have always believed leadership in the logistics field is as important, and maybe more important, as the technical aspects of the job.  As a logistics and supply chain executive you will be responsible for leading many people and, in fact, what you do will be far more about leadership than about your technical expertise.  The people you lead will have the technical expertise and the question is can you get them to do what needs to be done and have them use their ingenuity and innovation to go beyond anything you may have thought imaginable.  Some of this was discussed in detail in Adrian Gonzales' article:  Putting Leadership Development Back on Your Calendar.. and Your Budget!  He makes a lot of great points showing how important this is to the logistics and supply chain professional.

There are also many great development programs where you can "sharpen your saw" (Stephen Covey) such as the Executive Masters for International Logistics and Supply Chain Strategy (EMIL-SCS) at Georgia Tech.  This will help you gain technical expertise and help you gain leadership expertise.

Having said all of this, I love to listen to Clay Christensen of Harvard University speak.  He is brilliant in business (The Innovator's Dilemma), he is a moral and good man and he is a great leader.  His new book How Will You Measure Your Life is a "Must Read".  Listen to Professor Christensen speak on leadership, a moral compass and a direction to take in life.  As yourself what makes the "measure of a man"?  How will you judge your life? Will it be by money or by status or will it be by the good you do and what you leave to the rest of the world upon your passing?  I ask you, especially if you are starting out, to think deeply about this topic and question. This is the core question to answer.

When answering, don't forget the great words of John Bogle, Founder of Vanguard Group: "Not everything that can be counted counts and not everything that counts can be counted".

T. Boone Pickens on Morning Joe

I saw Boone on Morning Joe and I finally have got around to posting it.  A fantastic interview from a man who is actually working like crazy to save America.  Thank goodness for his common sense and I hope Washington will listen.

For those in the logistics industry, come to the CSCMP 2012 meeting in Atlanta and here him keynote!

Visit msnbc.com for breaking news, world news, and news about the economy

Alternative Energy and ACT Expo in Long Beach

A week ago I attended the ACTexpo in Long Beach and I came away more excited about alternative energy solutions than I was before the event.  The lessons learned and the excitement around alternative energy (Mostly CNG and LNG) were fantastic.

The first item I was genuinely excited about was the transition to these fuels will not be government subsidy driven.  Rather, the pure economics of the conversion will take precedent and those who see the value will convert on their own.  We will truly do "Good for the planet while doing Good for our companies"

The second item and the clear overarching lesson is when a company is going to move to alternative fuels it truly is an engineered solution.  By far, the biggest question was: Is it LNG or CNG for the future? Most respondents would make blanket answers as if it was an all or nothing.  I continue to say you have to think of this as akin to a stock portfolio: Some bonds, some cash, some stocks. And you adjust based on the economics and your personal situation.

Alternative fuels are exactly the same: Some LNG, some CNG, a lot of diesel, maybe some hybrid (we will see where this goes - the hybrid discussions were the most disappointing).  A company thinking of an alternative fuels strategy needs to do deep and INDEPENDENT analysis on what their applications are now and anticipated to be, the pros and cons of each application, the economics and then start putting the program together.  My feeling is those who just jump in because it is "cool" and it makes them look like they are doing "something" may find their portfolio all upside down and it will be tough to correct.

I highly encourage this conference.  A great place to learn a lot.  Just keep your thinking cap on and understand a lot of people are there to sell what they have.  The true answer is analyzing what the shipper wants and then finding the right mix.

Cost Cutting or Restructuring?

I heard the silliest argument on CNBC today asking whether a company is engaged in "cost cutting" or "restructuring".  What the heck is the difference you ask?  A person went on to explain a convoluted explanation when, in fact, they are one and the same thing:  Cost Management.

Cost management is to continually look for the most efficient manner in getting products or services to market.  It is that simple.. You get more units of output for every unit of input.  Whether that input be capital or labor it does not matter in the financial equation.

Further, every company should always be doing this.  It is, in fact, why you are in business and why you "add value" and how you gain competitive advantage.

So, let's stop the silly arguments of what we call it, realize it for what it is and move on.  I could have saved CNBC 5 minutes of their silly showtime.

Turning Over Procurement of Carriers to a 3PL?

I have met many companies recently who not only have outsourced their operations to a 3PL but they have also turned over the procurement and carrier relations functions as well.  I think this is a bad idea.

I believe this for at least three reasons.  First, and the most obvious, is you have turned over the entire budget to a company which, most likely, has conflicting interests to your own.  At some level, the 3PL is interested in making money for their company and many times actions which accomplish this do not also help the client company.  Can you develop complex gainshare algorithms which limit this problem?  Yes, but it is very unlikely you will get them to work.

Second, you limit your ability to exit the 3PL relationship if needed.  Everyone goes into 3PL relationships thinking they will never end and this makes sense.  You do not get married and immediately plan on getting a divorce.  However, in business, ensuring you have an exit strategy is a good and prudent thing to do.  When you turn over the procurement portion to the 3PL you have complicated any exit if needed.

Finally, you will lose critical intellectual capital.  When dealing with a 3PL it is important the shipper maintain the intellectual capital needed to fully understand the areas of warehousing and transportation management.

For all these reasons I would highly recommend shippers retain the procurement function.  Just seems to make sense to me.

Are You Truly Dedicated to Sustainability?

This is a question I ponder all the time. While I am thrilled when people do anything to help the planet, regardless of motives, I do wonder what would happen if people really were dedicated to this important initiative.  While we all know the "big things" to do (i.e., alternative fuels, recycle, etc.) I wonder how much impact we could make if we all just did some of the small things.  So here are just a few things you can do starting TODAY to make the planet a better place:

1.  Regardless of the type of vehicle you own, drive the speed limit.  Reduces emissions and saves gas.  Nothing infuriates me more than to see a hybrid drive driving 80 - 90 miles an hour.

2. Recycle, recycle, recycle.. Including composting

3. Buy less stuff.. Everything you buy comes to you on a truck, using fuel and will eventually have to be disposed of.  Less stuff means less of all that.

4.  Go on a diet and eat locally grown items.  This is an amazing task which is great for everyone.  You will be healthier (I know, I am one to talk but I have lost a lot of weight and will continue!), less food will need to be grown, and less trucks needed to drive all that food around if you buy locally.

Here is a small example:  We are spreading mulch to make our garden better and hopefully return oxygen to the environment.  We needed to put down weed blocker and rather than go buy it, we used old newspaper to do this.  It got rid of waste, we saved money and it eliminated the need for the weed blocker which means one less roll needed to be shipped.  If everyone did this and we reduced the need by thousands (Sorry if you are in the weed blocker industry) then we could actually take trucks off the road, reduce emissions and reduce the need for diesel fuel.

Here are some other ideas from The Wall Street Journal.

This is the way we can all contribute on a small level as we all work hard to make big changes as well.

Just a thought...

Happy Earth Day!!

Sustainability - It is About A Complete and Holistic Strategy

I am somewhat fascinated when I discuss sustainable supply chains with people.  I usually either get an "all or nothing" answer, an answer which is tied to a pet project, or the occasional "sustainability does not matter" answer (thankfully those people now are few and far between).

The clear proposal is good sustainable supply chain programs have to encompass a holistic view involving everything from how products are designed and packaged, how they are shipped, the type of fuel used when shipped and how the product is recovered at the end of life.  You cannot have a true sustainability program without looking at at least all the attributes listed above (they are not all inclusive).

So, the next time you address this topic make sure the "all or nothing" group does not rule the conversation.  Break the problem down into small pieces and attack each one.  This is your best solution.

Ryder Launches Military Veteran Site

Great progress from Ryder Corporation.  I guest blogged on Logistics Viewpoints recently about how great companies will leverage the returning veterans as a great base of fantastic employees.  This week Ryder announced (as reported on Logistics Viewpoints) a new employment website targeted at military veterans. Apparently you can put in your MOS (Military Occupational Specialty) and it will filter to the jobs available for your skill.

Congratulations to Ryder for "getting it" and leveraging the skills of our returning veterans.

Driver Wages - Really Going Up or "Signaling"?

An interesting article trying to quantify what driver wages would have to hit to be at the equilibrium point.  However, this data is meaningless unless you determine what the target price is for transportation services?  At what point to shippers move to substitutes to offset transportation increases?

Some may think substitutes are only in the mode of transportation however that is the least efficient way to substitute.  Shippers are always tweaking around the edges with mode transfers etc. however the most efficient and biggest impact areas for shippers to evaluate are activities such as mfg site selection, load ability, inventory trade offs etc.

At what point do transportation rates get so high that the shipper changes their operational methodologies?  Until you know the answer to this question it is hard to determine what wage rate will be the equilibrium / market clearing wage rate.

Is The Trucking Industry Rebounding?

There is anecdotal evidence based on an informal count of trucks on the NJ turnpike showing an increase in truck traffic.   I warn you, this informal study reported on CNBC is about as informal and non scientific as you can get however when you tie it to other evidence (i.e, FEDEX financial results - profit doubles) you see some coalescing evidence that the economy is picking up and trucks are moving.

However, if you take the comments by FEDEX CFO Alan Graf at his word, evidence is the economies of the world are not growing fast enough to offset things such as high unemployment

There is a mixed bag I guess.  I chose to believe the former rather than the later.

Diesel to $4.14.. Highest since the record setting 2008

Yikes!  Perhaps we will now get serious about alternative energies.  As a reminder, this is not a supply problem.  It is a world market and the price is going up.

Penn Wells Considered Safe by EPA - Fracking Politics

The politics around fracking, the way we are getting natural gas out of the ground, has been somewhat unbearable.  Here is the first time I have read good "science" behind the argument and it looks like the politics were much ado about hype than anything.

Keep an eye on this.  Natural Gas is the way our Country will get off our addiction to foreign oil.  I fully support a strict and detailed EPA enforcement to ensure we do not fix one problem and cause another.  However, I want to also ensure we use science and not politics to solve the problem.

Apple and iPad 3 Put Strain on Airfreight Rates and Capacity

As is being reported by multiple sources, airfreight rates are going up if you can find the capacity at all.  This, mostly, is due to Apple and the launch of the iPad 3. 

Amazing that one company and just one product can do this but when it is Apple anything is possible.  My sources tell me this could continue for 3 - 12 weeks depending on sales.  Given that sales are already being pushed out if you order on line (indicating they are already in a backorder situation) my guess and money is on the bigger number.

UPS In Tentative Deal to Buy TNT Express

As reported on CNBC, looks like UPS will buy TNT Express after all.  My guess is this is all about taking on DHL in Europe however I do not know for sure.  I have never been a big fan of logistics companies purchasing others unless there is underlying technology you need.

My guess is UPS does not need any technology TNT has.  It is dangerous to buy just for a "customer list".  Acquisitions are generally not a "10X idea".  They usually occur when management is out of ideas.

The Case for Sustainable and Ethical Supply Chains

For most of my readers it will not come as a surprise I am a bit of liberal when it comes to ownership for the sustainability of your supply chain.  It is just a fact that companies must take ownership of this and your customers, more and more, are becoming "sustainable aware" of what it takes to get them your product.  Further, they are going to punish you for not caring for the environment.

But, what about ethics?  This is the next area and it is more difficult as it is harder to measure.  We know slavery is wrong and we know if we see great working conditions that is good.  However, what about in between?  Does $2 per day seem unethical even though when you account for purchase power parity it may not be too bad?  This is the dangerous area and precisely why companies have to take control of their entire supply chain and ensure there is nothing which can even be perceived as being unethical or immoral in how things are made, how people are treated and how the Earth is treated.

This article in Forbes on Sustainable and Ethical Supply Chains sums it up well.  Two big examples of problems and then fixes.  Nike in the '90s had real issues with this and Apple does today.  Both moved and are moving aggressively to tray to stop the unethical behavior and both have brand names that allow them a bit of latitude.  Bottom line:  They have provided so much value to the customer that the customer will forgive a transgression as long as they actively fix it and fix it fast.

The key question for you is whether your brand is that strong?  Most are not.  Most will be dead on arrival if they are seen to be exploiting people or the environment for financial gain.

The bottom line:  Take control of your supply chain, have a good code of conduct, demand compliance and put in strict audit systems to ensure compliance is occurring.  Trust but verify is the name of the game.

Don't let your zeal to jump on the outsourcing bandwagon cause you to put your brand and your entire company's future in jeopardy.

CASS Freight Indices

I should have remarked on this earlier although I have been busy, busy, busy!  Looks like freight rates have leveled off from the somewhat aggressive increases over the last few months.  Intermodal seems flat while truck rates are up a bit.  This is what the CASS data would suggest although I personally think generalizing about this is a very dangerous game.

Depending on your freight flows and freight characteristics you may or may not see this trend.  If you are a "mega shipper" then perhaps the averages apply however most have specific and unique freight patterns.  My advice is to dive deep into those patterns and understand, in depth, regional movements along with nuances in the areas you operate.