The Schools of Experience - Developing Yourself and Selecting Talent

During holidays I really like to spend time with a good book and this Thanksgiving was no different.  I am reading (and re-reading) Clayton Christensen's book:  How Will You Measure Your Life?  This book is a fantastic read and it uses models of operation to help guide you in both your personal and professional life.  I may call on this in future postings but today I want to discuss his chapter on selecting talent called: The Schools of Experience.

In this chapter, Professor Christensen discusses how one should look at their careers and subsequently how someone should look at hiring talent.  The old model of climbing a ladder is no longer useful in a "flat" world (using Thomas Friedman's analogy and applying to corporate America).  Most organizations are extremely flat - especially relative to years ago - and this means it is a collection of experiences which will both drive your career and should drive your selection of talent.   He has many examples but let me provide two from my own career:

Transition from the Military:

The military was a fantastic place to both give back to the Country and also to accumulate many experiences:  Leadership, operating in stressful environments, fast decision making, and I could go on.  Truly, I cannot imagine any civilian business giving better experiences at those situations than the military.

However, the military does not provide a lot of financial experience, profit and loss experience or business competition experience (There is, after all, only one Pentagon!).  So, when the opportunity presented itself, I moved into the business world.  In that world I have experienced all the items I mention above.  Was it a "promotion"?  If measured by wages, true cost of living, or titles it could have actually  been considered a demotion.  If measured by gathering huge experiences which I could not get in the military, it was a huge promotion!

Transition from "Big Company" to Entrepreneurial Company:

The skills required to work in a big company with large well established processes are completely different than those required in the small and entrepreneurial world.  So, using the theory of "experiences" I decided I wanted that small experience even though I was in a well established executive position at a great company.

Using supply chain metrics, was it a promotion?  I went from managing 14M square feet of warehouse space to 6M square feet.  I went from $300M+ of transportation spend to $80M.  To the stereotypical person, this could be seen as a "lesser role".  Trust me, it was not!

I quickly learned the skills used in a large company are close to useless in a small, everyone does the work, entrepreneurial and "scrappy" company.  The experiences I gained at this smaller company could never have been attained in the larger, well established company.  And, if I were to just do what I did in the large company in the entrepreneurial company, I would have failed.   I had to adapt, learn, gather new experiences and apply them to the unique issues.

What does this mean for talent acquisition:

Even today with the sophisticated human resources (HR) departments I still find people rely on the "ladder" model versus the "experiences" model. For example, if you were hiring for a start up company would it matter that someone become a SVP in a multi-billion dollar company?  That person has incredible experience (and has been successful) in delegation, building staff, using sophisticated ERP such as SAP etc.

What this person lacks is start up skills.  Can they do a lot of the work themselves?  How will they perform without "staff"?  Etc.  The "ladder" model shows that this person is a great pick but the "experiences" model shows the person to be lacking in a number of major areas.

Conclusion:

We can use the "experiences" model to guide both our careers (choose experiences over perceived promotions) and we can use it in talent selection.  It tells a different story when this is applied versus the "ladder" model.  My advice for those starting their careers is to work to get many different experiences and work to stitch together a set of skills, acquired by experiences, that will serve in you in a multitude of settings. This will ultimately serve you better than "climbing the ladder". 

The Amazon Effect

For anyone who runs a warehouse and has Amazon "come to town" you know, at a very micro level, about the "Amazon Effect".  The entire labor and transportation capacity situation in your town changes in an instant.

However, it is bigger than that from a nationwide perspective and I had the privilege of listening to a very insightful presentation given by  Eric Johnson (Twtr: @AmShipEric), research director and IT editor at American Shipper at the Jacksonville CSCMP roundtable event in October.

He had some very good insight into what Amazon is trying to become and what they are not trying to do.  My conclusion, after listening to Eric, is Amazon wants to "own the customer".  Now, of course the key question is what does this mean?

If you think about "owning the customer", it really covers about 5 major touch points:

1. Own the order experience (The first point to gain loyalty for any product).  This drives all sorts of information technology.
2. Own the delivery experience (Appointments, delivery, right to how the customer is greeted). 
3. Own the post delivery experience (solve issues etc)
4. Own the payment experience (whether they sell it to you or not).
5. Own the customer ecosystem (Alexa app, ECHO and DOT). 

If your company is not investing heavily in all of the above you most likely are going to be displaced by Amazon at some point.  This is why I published: "What Exactly is Amazon... 3PL? Retailer? IT Company? Delivery Company? - Answer: All of the Above" back in October of 2015!".  

Bottom line:  The story has not changed.  Amazon is coming for your business regardless of what you are doing so be ready to compete.  And, for those who think it is just a matter of time before they are crushed by the weight of costs, think again.  They have entered into a new space and as this article from back in February reminds us:  They are winning the race for the smart home, and no one is noticing. 

October Results are Not encouraging for Transportation Providers

It may not be a complete "Happy Thanksgiving" for people who manage 3d party transportation.  After some very large decreases in the last few months, the CASS Transportation index decreased again in October.  The transportation index dropped 1.4% in October.  While this is better than the drop of 2.8% in August and 3.5% in September, it still shows that there is over capacity in the transportation industry.

The Intermodal index rose, YoY for the first time since 2014 by 0.4%.  This, I would call a "rounding error".  Let's call it flat.

Source:  CASS Transportation

Source: CASS Transportation

As I have discussed for many years, there is a fundamental shift in the way freight is moved in the US and I am wondering if even the metrics are wrong?  Should we be so tied to this freight index and does this really tell us about the economy? Today, the economy seems to be moving fairly well but transportation continues to decrease.  The issues:

1. Miniaturization of product
   
2. E-Commerce (reduction of movement of product to stores
   
3. Digitization of product - more product delivered electronically (Books, newspapers, inserts, music etc.).
   
4. Localization of suppliers - This is very interesting because it is a function of transportation costs getting out of control a few years ago. As more finished goods / component mfgs localize, transportation requirements decrease dramatically (Better cube utilization when shipping raw materials v. shipping finished goods or components).
   
5. The Borrowing Economy:   I will write more about this and the impact to supply chains but this is real and it is impacting how much we buy.  Think about how many items you have that sit and do nothing most of the time.  If people start aggregating this in a borrowing economy, the total amount of product bought and shipped will be reduced dramatically. 

So, the macro trends fully support this reduction in transportation even though the economy seems to be moving along quite nicely.  

Marc Althen at Penske Logistics - Leading by Example and Empowerment

A great article about a great leader titled "Leading by Example and Empowerment".  Congratulations to Marc Althen.. .well deserved

CASS Report from September is Somewhat Grim - Macroeconomic Monday

OK, I am late to the party on this one, sorry but when I read it I thought I had to write, albeit, late.  The Cass Freight Index Report from September had virtually no good news in it.  The best thing they had to say was (actual quote), "... the YoY contraction [in expenditures] appeared to be less bad [than August]".  When all you can say is "It is not as bad as last month", you know it is bad.

On To the Numbers:

• Shipments were down 3.1% YoY
• Expenditures were down 3.8% YoY

And the industrial recession is on.  I think they rightfully state that the culprit may be the contraction in inventories.  I have written many times about the growth in inventory relative to sales and I think companies have realized they need to get rid of those inventories.  This means most product is already here and in the warehouses / stores and this reduces the need for transportation immensely. Why buy new product when you are so dramatically overstocked. 

Destocking takes bps out of GDP

This graph, from CASS, tells the story that destocking, while slowing down, is still a drag on the economy.  CASS says they are continuing to be concerned about too many autos, elevated inventory relative to sales and the fact that the consumer has not really dove in with both feet (or open wallet).  

Now, the key issue will be whether the Fed increases interest rates in December as everyone expects them to.  That will be a real problem as the economy, even if you think it is good, is truly running on just about one cylinder. 

What does this mean for shippers and providers:

I think the data is clear, and has been for at least two years now, and it is telling us that the shippers are in control (especially in ocean freight) and will be for the foreseeable future.  Of course, this is nothing to write home about as this means the economy is soft.  However, if you are shipping and you have a nice business you should take advantage of these soft times.  Believe me, when it swings, you better duck.  And, as all my readers know, you will not get benefit because you overpaid in a slow environment. 

Actions:

• If you have not bid freight in a while - do it now. 
• Lock in rates for two years if you can - a nice hedge
• Move to a market based fuel system to take out any fuel fluctuations in the rating structure
• Watch tender turn down rates.  This will act as a great "early warning" telling when / if the tide turns (don't expect this until 2018)

An Update on Drones and Drone Delivery

I wrote about Drones first in February of 2013 after watching a Nova episode called "Rise of the drones".  This was almost a full year before the infamous Jeff Bezos 60 minutes episode where he somewhat stunned the world discussing using drones as delivery vehicles.  In one way we have come a long way and in another, it is amazing how slow it has taken to commercialize this.

Two updates to report.  First, at the CSCMP Annual Conference I was able to attend the "Educators Conference" and watched a great presentation by Professor Dr. James Campbell, Professor and Chair, Logistics & Operations Management Department,  College of Business Administration, University of Missouri - St. Louis.  He discussed the use of the "Truck - Drone" hybrid which entails trucks moving to central locations with product.  At that location, the drones would be launched and conduct deliveries.  A fascinating topic which made more sense as things such as battery life and laws about flying out of vision will make launching them from central DCs almost impossible for the near term.

He also had a nice graph showing the cost per delivery and Amazon can get this cost down to $1.00 per package.  That is amazing.  There was a lot more in the presentation and it is clear thought leaders such as Dr. Campbell are making large strides.

Second, I checked in on Missy Cummings who, in 2013 was the star of the Nova episode. Remember, she was one of the first F/18 pilots for the US Navy and a graduate of the US Naval Academy.  She now runs HAL - The Human Autonomy Lab at Duke.  She continues to study the use of bigger and bigger drones and believes these will be used for delivery.  She also has an interesting twist (See video below) on the human interaction of drones.  That is becoming the topic as the technology is no longer "futuristic" but rather it is known and can be implemented.  The question is how will we interact with drones.

If you have not seen the original NOVA episode, even though it is 3 years old, you really should watch it (Below).  I have also included a recent speech Missy made.  She is truly brilliant in this field.

Mary "Missy" Cummings Gives Talk at Duke

PBS NOVA - Rise of the Drones

A Balanced Summary of Where The Trucking Industry Stands

Fleet Owner summarized the FTR Transportation conference with an article about the headwinds facing the transportation industry.  They are real but they are what every business faces - uncertainty. That is what makes a business a business.  Certainty is what utilities have.

Usually the press out of this conference is designed to scare the shippers into paying higher rates than they need to but, at least within this summary, it appears they are becoming more realistic.  Here are some key points:

• 2% GDP growth for the next two to three years (A number I have used for many years now). This is significant because virtually all the transportation executives I know say the real capacity crunch comes at 3% GDP growth.
  
• Eric Starks states the industry will flat in the foreseeable future.  Flat means leaders tend not to know what action to take; what bet to make.
  
• Mark Rourke, President of Schneider claims they have a 4% to 5% productivity decline due to electronic logging devices (ELD) and they have not recovered from this since.  This I will never understand and wish someone would explain.  How can ELD's cause a productivity decline unless you are not already following the Hours of Service (HOS) laws. I would think this would make them more competitive as it will ensure everyone follows the laws.
  

I also think one of the biggest issues facing the trucking industry is just the nature of the "new freight".  With freight now going to central and very large DCs and then parceled out to the consumer, the entire leg of freight going to the store is being eliminated.  Think of this:  Rail gets it to the DC and the part that was truck (DC to Store) is being eliminated.  As leases run out, more and more retailers will close stores and go to on line.  This will have a huge impact to the trucking market.  

Perhaps this outlook (grim as it is) is what is driving the Schneider IPO?

Schneider Seeking IPO

A fascinating development from the Frozen Tundra.  I just read they are seeking to do an IPO for part of the company.  I was there when they did this the last time... It crashed and never happened.  Let's see what happens now. 

More evidence that I think the Schneiders want little to do with trucking.  Don Schneider used to say the decision to go public was only a finance decision to get access to capital.  In this day with interest rates as low as ever and with free money everywhere, one wonders why you would go public now.  It cannot just be an "access to capital" question.

Fundamental Supply Chain Shifts Kill The Idea of a "Surge"

I have talked a lot about the inventory to sales ratio and how it is such a great predictor of what will happen in the transportation industry. Back in April I was sending a warning sign in my post "Inventories Continue to Grow" and I even signaled this all the way back in 2012 in a post titled "Inventory to Sales Ratio Tells A Grim Story".  It appears the Wall Street Journal now agrees.

In an article today titled "At Ports, A Sign of Altered Supply Chains", they discuss the muted growth (or at least not shrink) of the trucking and ocean business.  The cause?  You guessed it - the fact that inventories are high, the consumer is moving to on line purchasing, and the more disciplined approach to inventory management.  There are some key shifts happening:

1. Demand Sensing Supply Chains:  These have finally come into their own.  Companies are much better at identifying the purchase trends and immediately shifting inventory purchases to adjust.  If the consumer slows (or moves from apparel to electronics for example), Demand Sensing Supply Chains adjust almost in real time.  Gone are the days of huge inventory buys "just in case".
   
2. On Line Purchases and The Death of Excess Inventory: Anyone who has managed inventory knows these key tenets of inventory management:  As you move inventory out and disperse it among stores or other storage points, your forecast accuracy decreases, your errors increase and the likelihood you will "orphan" inventory in the network increases dramatically.
   
   To solve these gaps in information, you generally overbuy inventory to keep "in stocks" high.The inventory benefits of on line are clear:  Far fewer inventory points (probably 4 at most) result in much higher accuracy which translates into far fewer inventory dollars to service the same consumer base.  This, of course, translates into much less transportation needed.  Those who say it does not matter, we are selling the same amount of stuff, do not know how the "laws of inventory" work.
   
3. The Growth of The Supply Chain Data Scientist:  This is an entirely new field in supply chain and is different than just being an analyst.  This is deep diving into data, pulling "fuzzy" data points together and identifying trends.  These people see changes in buying patterns far earlier than ever before and provide that information to management which responds far faster than ever before.  Inventory buys can be shut off in a nano second. 

These factors are resulting in a far more disciplined inventory management process.  We have been in an "over inventoried" position, in the aggregate, for a very long time and I have been predicting this will keep the demand for transportation services muted.  This is what is happening. 

Source:  Wall Street Journal

The New Transportation Technology Ecosystem is Shaping

Developing the future is messy.  It always appears it cannot be done and individual technologies, when looked at in isolation, look like they will never work.  However, I submit this is short term and to borrow a Star Trek phrase, is "Two Dimensional thinking".  Let's think about this in "three dimensions - think about the ecosystem and the connection of this ecosystem.

Let's review some key technologies being developed or deployed now:

1. Electronic logging
2. In cab cameras that go beyond just filming but rather sends signals to centralized managers who make real time decisions.
3. "Uber" type applications for booking, managing, and tracking freight
4. Autonomous vehicles and the "Otto" type technologies. 
5. On line immediate economy (hour type delivery)

All of these technologies have advocates and enemies when looked at in isolation. However, I submit that you have to think of this in "three dimensions"; you have to connect the dots. All of these technologies need to come together to build the infrastructure of the future for transportation.  They all point to one thing:  A driverless truck.

The core to this is the autonomous vehicle - which probably explains why Uber buys Otto.  But then, once this is solved, there are other things that have to come into place for this new ecosystem to work:  You have to book the freight easily (enter Uber), you will want to see what is happening (especially at delivery and pick up points) (enter cameras), you will need to track where the truck is and what it is doing (enter E-logging).  

The one thing I cannot figure out is how the truck will fuel and perhaps that leads to a futuristic truck stop which caters to the autonomous truck. Perhaps the biggest issue with this entire ecosystem is how will the truck stops like Pilot make money when there is no one to go into the C-Store to buy stuff.  

So, when you look at the entire ecosystem of the future, you can see it taking shape, albeit messy, with all the technologies being developed.  If you look at them in isolation, solving an old problem (i.e., Does E-Logging really solve driver logging or does it prepare us for having no driver?) then you will wonder "why do we need this".  If you look at them together, building the new transportation ecosystem, then you say, "Got it!".

Those who look at these developments individually make me think of Khan and his two dimensional thinking:

Will The On Demand Economy Work in For Hire Freight?

I recently read a very well written article in Trucks.com titled:  Will The Sharing Economy Disrupt Trucking, Transportation and logistics?  It covered the very common topic of the day which  is the "Uberization of trucking".  Will it work?  Can shippers get over the fear of people they do not know actually hauling their freight?  Will it be consistent enough for commercial customers?

All of these questions are great questions and I have always said that all the answer to these questions are simple:  Yes, it will be messy during the transition;  Yes, these issues will all be solved; and Yes, the ultimate solution will not look exactly like we think today but we will move more towards "Uber" than we will stay where we are.

I think this is generally the conclusion of the author however I disagree with him in one major aspect: He still thinks of logistics in isolation of everything else that is involved in getting products to market.  He says:

" But for all the speed and mobility an evolving new model like this brings, there are tried-and-true, iron-clad laws of physics, geography and time that need to be respected by newcomers to the industry."

This hints that the author thinks of the final delivery in isolation but in reality this is just one part of the overall cost.  For example, what if the lack of retail space, the lack of moving product between nodes in a distribution network saves significant dollars. Some of those dollars are reinvested in a higher cost "final mile" solution and some are retained:  The net new cost is less than the old cost.

Think of the significant advantage in cost/sqft on line retailers have relative to those who have to get high cost real estate in commercial locations.  The bottom line is there is a total cost to deliver product from the raw materials, through manufacturing, through distribution and the finally, delivered to the customer.  This cost has to be looked at in its entirety and you cannot just look at one element and say something will not work due to the cost of that one element.  If other costs are reduced or eliminated then perhaps that final mile cost can go up a bit.

Finally, don't think that this is a "law of physics" cost structure as this author thinks.  Once you say "law of physics" it becomes a discussion where one believes the costs cannot be mitigated:

Well, along comes Uber buying Otto.  And, that, as they say, changes everything!

1.4 Million Supply Chain Workers needed - Strategy: Keep the Ones You Have

Get ready!  The "War on Talent" is here and it is here to stay.  Fortune published an article titled "Wanted: 1.4 million new supply chain workers by 2018".  We have always discussed the need to develop and nurture talent and now it is getting even more important.

If you are not focusing on how to develop and retain your great talent, you will be forever out in the market trying to recruit new talent.  And that, most often, is a loser's game.  It is much easier to develop what you have then try to assess and acquire what you do not have.  Here are some of my ideas on how to deal with what is becoming a hyper competitive market for talent:

1. Cater to Millennials while at the same time ensuring the "gray hairs" experience is utilized.  I hear a lot about the catering to millennials so I will not rehash this.  I do think though companies have to ensure the more experienced workers have a place.  These people carry years of ideas, experiences and knowledge.  Combine that with the skills of the millennials and you have an unstoppable force.
2. Be customer centric and dare I say - Customer Obsessed.  People love working on customer focused ideas and activities.  People want to grow businesses.  People hate cutting and they hate shrinking.  Be customer obsessed.
3. Make if fun.  I once had a boss who on day one showed me the company values and he actually went out of his way to tell me that "fun" is no where to be found.  "This is a business", he said. it was that moment, day one, that I started to think this was not going to end well.  People have to enjoy what they are doing.  When you hear people say they are "passionate" what they are really saying is they love the blending of their skills and they are having fun using those skills.
4. Invest in your people.  If you do not, someone else will and they will be gone.  Yes, you will have the few times where you send someone to training and they promptly leverage that into a better job somewhere else.  But, don't make everyone who is left pay for that.  Invest, invest and invest.
5. Embrace the "boomerangs".  This is a unique and interesting idea.  Many companies will not entertain bringing a person back who leaves.  I say you should embrace them.  Think of it as an opportunity to say they looked, the grass was not greener and we are welcoming you home.  That will go a long way for your current employees, who probably still have a loyalty to this person and I believe you will have gained an employee for life.   They will have left, learned a lot and now come home.  What great way to acquire talent!

I am sure there are more you may have but just like the easiest customer to get is the customer you already have, the easiest great employee to get is the one who sits right next to you.

Adding to this is an article by Tisha Danehl titled How to Recruit Top Supply Chain and Logistics Professionals.  She has all the right ideas!! 

What Have We Done to The World?

Recently I posted about socially conscious and responsible sourcing.  Michael Jackson says it much better than I:

Inbound Logistics Discusses Cost

As if on queue, after I wrote my article about recasting your discussion from "cost" control to "revenue" generation, Inbound Logistics published an article titled:  "Keeping an Eye on Cost Management".  The article discussed the 80/20 rule where 80% of a network's cost is baked in to the network design and 20% is about execution.  I agree.

But, again, I must say the article totally misses the point of Customer Centric Supply Chains. You do not design your network to cut costs!  You design your network to provide incredible service to your customers.  Once that is done, you figure out how to do it at the most optimal cost.

Most of the work in network design is working cross functionally with sales and strategy to identify not only what customer needs are today but where will they be in 10 years.  Where is the ball going.. not where is it today.

This is why Amazon is so brilliant in their supply chain strategy - they focus solely on the customer needs, they design to those needs and then they drive out cost.  Further, they are not looking at the needs today but rather the needs 5 and 10 years from now.  How do I know this?  Easy:  Everything Amazon does is first met with disdain, "no one can make money doing that" type statements etc.  When I hear that, I know they are on to something.

Why Logistics' Leaders Need to Recast "Cost Control"

The best presentation I have seen in a long time was given last year at the CSCMP Annual Conference and it was given by Amazon.  The topic was a general update on their supply chain however a statement was made that has stuck with me.  The speaker was asked how they decide what service to provide given the costs.  His answer was clear:

" We don't trade off.  We provide the service then figure out the cost".

This is the definition of a true customer centric supply chain.  The customer decides the service level and Amazon provides it.  It is then up to the logisticians and engineers at Amazon to figure out how to do this profitably.  

When the cynics asked him how long he can go with losing money, his answer was "We make a lot of money, we just choose to reinvest in the business".  Another great answer and given the results of Amazon in the last few quarters, I think this issue of them making money has been put to bed.  

So what is a person to do who is stuck in an "old school" business where the executives believe the only thing a logistician should do is cut costs?  Here are a few ideas:

1. Recast it into growing revenue.  Logistics systems, when planned properly and executed at a high level do more to grow revenue than most parts of the business - including sales and marketing.  If you own the final mile of the delivery then you definitely have more impact.

2. Invest in quality.  Why do I do almost all my shopping at Amazon?  It is because the quality is near perfect and it is incredibly consistent.  This, again, will grow the business. 

3. Invest in final mile and own as much of it as you can.  Amazon is learning that now with the various ways they are investing in the final mile for Prime.  You can have partners but they have to execute your system.  For example, Amazon delivers on Sunday through the US Postal Service.  However, they use the exact same customer service alerts as any other part of Amazon.  It is seamless to me as a customer.  

I heard another person talk a while ago and it was about the two major touch points for a customer. These are the point of purchase and the first point of use.  Because so much is moving to an order and deliver method of buying, the point of purchase for delivered goods is now both the on-line experience and the final mile delivery.  Make the final mile great.  

Of course, there are other items but these are the big three in my book.  Do this and you will make your logistic's systems revenue generators and not costs to be cut.  If your leaders do not see this, then start planning an exit strategy because they will ultimately lose in the market place. 

Cass Indices for June Report Real Issues with Trucking and Intermodal

The Cass Indices for June reported what observers knew was to be the case:  Once again the trucking "recovery" has stalled and capacity exceeds demand.  Part of this is due to the elevated inventory levels with retailers and part just due to increased capacity.  Remember, items are much smaller today then ever and with advances in packaging, the trucking industry just has too many assets chasing too few loads to sustain a lot of pricing.

For the last three months, the truckload index has decreased 2.3%, 1.2% and 1.8% respectively and the graph shows how difficult this market has become.  We now are looking into 2017 before there is any tightening of capacity and pricing.  I believe capacity will need to exit the market as not only is there too much today but the economy will start slowing and that means just the normal cycle would require removal of capacity.

Interestingly, this comes at a time where trucking costs are rising and as we saw in the Swift 2Q reporting, OR rates are starting to increase (SWFT 2Q2016 OR rate was 92.7% - highest in the last three years). JB Hunt sees margin erosion in the latter half of the year for both trucking and intermodal.  Great if you are a shipper as soon trucking companies will start working to get any contribution to fix but bad if you are an investor or a trucking company itself.

Starting in late 2015 and through this year, the pricing index has gone down and continues to go that direction.

Suffice to say, Intermodal is following the same trends.

So, what is going on here?  Why do we continually get told that "this is the year" and yet for the last 3 years at least, the tightening has never arrived?  I attribute it to three main items:

1. The Economy is not nearly as robust as you may think watching the markets.  Remember, finance (which requires no trucking) has grown to be a substantial part of our economy.  In the past when you said GDP went up x% you could correlate that directly to an increase in the need for transportation of goods.  Today, that is untrue.

2.  Inventory levels remain elevated.  Think of it this way, when inventory levels are as high as they are this essentially means you shipped the product in previous quarters.  This is like "borrowing" against the future.  Made those quarters look good but because there was not enough sell through, the product just sat and now when sales tick up, the inventory has already been shipped.

3. Miniaturization, packaging and digitization of products.  I have always said the shippers would not sit idly by and just watch rates go up.  They have figured out ways to streamline packaging, digitize what they can (including the growth of 3d printing, and make things smaller.  This means less transportation capacity needed.  

Overall, given the way the economy is headed, I would be shocked if 2017 was anything different.  Hunker down, we are in for a bit of a ride here.

Supplier Compliance and Social Responsibility - Look Deep Into Your Supply Chain

The Guardian has run a great piece in their paper titled "Vauxhall and BMW among Car Firms Linked to Child Labour Over Glittery Mica Paint".  This article shows the results of the paper's investigation into illegal mica mines in India and the use of child labor.  Not the type of headline your company wants to have. I will summarize the impact on supply chains but you should read the full article at the Guardian website.  It is a bit troubling that major companies are still claiming ignorance on issues such as this.

Of course this has huge implications for supply chains.  How do you get the materials you need from thousands of suppliers and still maintain control over the way the materials are extracted and handled. This is especially important when it relates to raw materials mined from the earth.  So often, these materials are mined in 3d world counties with no standards on safety or child labor.  The cosmetics and car industries are learning a lot right now.

If you are responsible for any type of procurement in your supply chain and you are not actively and aggressively working with all your suppliers (Walk the "tiers" all the way back to the raw material extraction) then you are putting your company's brand and reputation in grave danger.  Remember, Brand Value is only made up in trust.  Trust can disappear over night.  When the first thing a company says to the press after a story like this comes out is "We don't discuss supplier relations with the press" (like PPG initially did), you know they have been caught off guard.  Either they had no program or it was woefully inadequate and now they are scrambling to find out what the heck is going on.

Picture from The Guardian

Some thoughts on what you should be doing:

1. Prioritize Social Responsibility and Responsible Sourcing Strategies by appointing a "C" level executive as the program sponsor.
   
2. If a price for an item or for materials is "too good to be true" then it probably is and you should investigate.
   
3. Have a no tolerance policy.  No "slaps on the wrist" but rather eradicate from your portfolio any supplier who is non compliant.
   
4. Have "boots on the ground" in all countries where you have significant presence.  If you know the "sparkle in the paint" comes from mica in India and you know it is mined - you need to be there.  Someone needs to go and inspect (It always amazes me how these newspapers can find it with no problem but the key executives will say 'I had no idea.. '.

Finally, as consumers, we need to continue to ask and probe before we buy.  Before you buy that sparkling new car with the beautiful metallic paint, do a little research.  You may find out your beautiful car is a product of a 7 year old with a pick axe breathing toxic materials and being sentenced to a life of what is essentially slavery.  

Help Adrian Gonzalez Raise $10K to Fight Type 1 Diabetes!

Anyone who has been in this industry for more than a day probably knows Adrian, has heard of Adrian or has watched his great videos on Talking Logistics.  He is working for a great cause and that is to stamp out Type 1 Diabetes and he is going to do a 100 mile bike ride in Death Valley to show his commitment.

Let's all rally around him and sponsor him.  You can submit your donation / sponsorship on JDRF Ride to Cure Diabetes Page.  Let's support him!

Macroeconomic Monday® Special Edition - Watch the Debt

I have read two major books recently on the economy - one old and one new. Both appear to be seminal books on what drives economic booms, busts and panics.  The two books are:  1) The Makers and The Takers: The Rise of Finance and The Fall of American Business by Rana Foroohar. 2) Manias, Panics and Crashes: A History of Financial Crises by Robert Z. Aliber.

The theme of both books is excess debt plays a huge role in the build up to any recession (or worse, depression).  The cycle goes something like this:

1. Recovery begins through stimulus or some other external event (think war spending).
2. The cycle takes off and should become self sustaining (Although we never saw that this cycle)
3. Eventually it starts losing steam. In order to keep it going, we need to incur higher and higher amounts of debt. 
4. In order to keep the higher debt going,  we have to allow sub-prime to participate. Not only does debt go up but debt quality goes down. 
5. Eventually, defaults begin.
6. People begin hoarding cash and spending less as they fear the economic downturn.  This causes  more defaults as layoffs begin. The downward spiral begins. 
7. Voila!  Recession or worse and then we start all over again. 

This has been the case for hundreds of years (despite people wanting to go back to the "good old days",  hard depressions are less harsh now and certainly less frequent).  As we see freight volumes going down and with that, freight rates going down, I have to ask, are we starting to see this cycle in its later stages?  Certainly, we are at the tail end of an expansion but what does the debt data tell us?  

In this and subsequent editions of Macroeconomic Monday® I am going to attempt to explain where I think we are.  Today, we will look at three topics:  The overall debt (Household) in the nation, the makeup of that debt and finally the quality of auto loans.

The graph the the left depicts the issue at hand.  As you can see from this chart our overall household debt is almost at pre-recession levels. Two other key points are clear from this chart:

1. The debt level relative to 2003 is incredibly high.
   
2. The amount of debt due to student loans has grown exponentially (yes, this is a big problem - student loans cannot be discharged in bankruptcy and do not have physical assets behind them).

Mortgage debt is still inflated and the very interesting part of this chart is the growth of auto loans. The key part to this, as explained in the graph below, is more and more auto loans are made to the sub-prime sector of the economy. 

This graph shows more detail on the auto sub-prime loans (When you see your friend get that new BMW, you have to wonder where the money came from).  You can see that auto sub-prime really telegraphed the previous recession and then people clamped down on their borrowing to right their personal balance sheets.

However, really since about 2011 this has changed and the sub-prime borrowing started taking off again. This was almost fully due to automobile companies needing to keep the "post recession party" going.  

So, our first lesson is pretty clear, and stark.  Personal debt is growing and total debt is almost at the pre-recession levels. For one of the biggest and riskiest categories (auto loans), sub-prime debt is increasing. Finally, student debt, which stops or delays household formation, is clearly at unsustainable levels.

Following our guidance in the two books I mentioned above, this is the "brake" on the economy which never lets the flywheel turn on its own.  It is also why markets go into turmoil every time Janet Yellen even remotely mentions increasing interest rates. This brake is why freight volumes are down, we have over capacity in transportation and rates are starting to plummet.  If people do not buy, companies do not make and therefore freight capacity exceeds volumes and rates go down. It is that simple. 

So, the next time someone says to you "things will get better next year", remember the debt story. They cannot get better when more and more money is going to pay interest on debt incurred for items already purchased.  And, of course, this is why you are seeing negative interest rates as central banks realize that is the only way to fight this.  But, more on that next time.  

Revisit "Favored Shipper" During Downturn in Rates

I have advocated over and over that the idea of getting better rates because you are a "favored" or "preferred" shipper is a red herring.  The idea that a trucking company will take less in profit because you are preferred just does not make sense.

In the environment of rate reductions and over capacity I am sure shippers are starting to hear the same old mantra from the trucking companies:  "Stick with us and pay higher than market rates.  Once the "worm turns" we will stick with you".  This is the logic. Yet by all accounts, even the transportation executives believe transportation is a commodity play.  Less capacity and more demand = prices go up.  More capacity and less demand = prices go down.  That simple.

I had been somewhat a lonesome person in this argument until C.H. Robinson, along with Iowa State University, attempted to quantify this with a white paper entitled:  Do "Favored Shippers" Really Receive Better Pricing and Service.  Let me cut to the chase and let you know the answer is NO.  Here is a quote:

"Carriers cite many attributes that may result in "shipper of choice" status.  Research shows that keeping the driver moving and generating income is more important to these carriers than keeping a shipper as a customer".

The bottom line is that dwell time of the driver is the overriding factor to determine if you will get best price or not.  And really, it is not even the driver rather it is the trucking company asset (Truck and trailer) they truly care about.

So, remember, no matter what you do in terms of "market rates" what really matters is dwell time. The research clearly suggests that regardless of what you do in terms of rates now, in the future, it is all about dwell time and if you do not have best dwell time, what you did when rates turned down will be meaning less.

My advice is the same now (and even strengthened) as it always has been.  Take what is yours in terms of rates because the trucking company will take what is theirs when the environment changes. Then, of course, do the right thing and keep the trucks moving.

Predictions Coming True - Inventory Adjustment Under Way and Rates are Down

A special edition of Marcoeconomic Monday today!  The results are in and they are really showing a slowing economy (GDP adjustments have been lowered), inventory adjustments being made and therefore truckload and intermodal rates going down.

I have shown throughout this year that the inventory to sales ratio was telling me that inventory was growing at an unsustainable rate and sooner or later a correction will come.  The Wall Street Journal recently acknowledged this with an article called: Inventory Pullback a Drag on Logistics Spending. As companies have realized the need to adjust inventory levels, the need for more product decreases and therefore the need for transportation goes down.  Result?  A capacity / demand imbalance that supports lower rates.

The newest CASS readings show this is coming out in the industry rate structure.  The truckload index fell 1.2% in May after reductions in April and March.  The intermodal index reduced by 2% and Cass has acknowledged this is 17 consecutive months of YoY declines.

Bottom line:  Rates are going down, the economy continues to sputter and another year of "this is the year" seems to be fading away.

Schneider Enters The Final Mile Battle - A Very Late Arrival

An interesting development over the last few weeks which I needed to digest was the entrance of Schneider National into the Final Mile foray.  My readers know I have followed the growth of final mile for many years (See where I showed XPO's acquisition in 2013 was "game over").  I was an "early adopter" of how important this segment was to the overall logistics network moving products to customers.  One thing we know is Schneider cannot be seen as an "early adopter" of anything - they are very disciplined and careful in investment.  So, this is why their entrance is so important.

The service is called Final Mile+ (JB Hunt has had Final Mile Services for many years - confusing branding by Schneider) and it appears to be a direct competitor to the XPO story of owning the supply chain from raw materials through manufacturing to retail then to the customer's home.  They acquired both an operating company, Watkins and Shepard, and a technology company, Lodeso.   The key will be whether Schneider is successful at stitching this together to give the customer a seamless view from the beginning to the end.  To this point, few companies have been able to do that and it has been tough for 3PLs to make the case that "one stop shopping" really adds value.

I personally believe the model is getting a bit crowded at the integrator level and very sparse at the operating level.  Remember, all these companies (XPO, Schneider etc.) are really just brokers to a final mile courier service.  It is at the bottom level where the problem exists.  We need more people actually doing the hard work of pick up, delivery and installation.  I don't believe we need more integrators.

JB Hunt Final Mile differentiates itself because, for the vast majority of what they do, they use their own trucks and drivers.  I think that ultimately will be the competitive advantage.  While today it may be cheaper to integrate many couriers, I think in the long run service will be the key element and the way to get that service is to own the assets.

How Lack of Same Day Delivery Saved Me

This is a logistics story in reverse.  Rather than discuss the benefits of same day delivery I am going to review with you how lack of same day helped this hapless consumer.

I was out wandering as I tend to do on Saturdays.  Usually I shop with my wife and while she looks for things I look at things and wonder how they got there and why someone would buy this stuff.  My eyes wandered to a "Big Green Egg" in Ace Hardware.  Ok, this may need some explaining.

A "Green Egg" is a ceramic outdoor cooker / smoker / grill.  A fascinating device which looks cool, people swear by the food it produces and costs a ton of money (Do I really need a $1000 grill)?  Of course, like all good products, once you buy the base produce there is a wall of "accessories" which can bring the full cost to $1300+.  They have learned well from the Iphone!

Ok, back to logistics.  I spent a lot of time looking at this device and two questions came to mind:  1) How would I get this home (I have cars not trucks) and 2) How would I get it to the back yard (it is very heavy)?  Those were the final two questions the sales person had to "sell" me on and I probably would have made this impulse buy.  Unfortunately, there were two answers he gave:

1) Earliest they could get it to me was next Wednesday (I live 5 miles from the store, he could have brought it in a pick up truck during his break).

2) They only do "curbside" delivery - I had to get it to my back yard and he agreed that was not easy.

I looked at him and said "let me think about that and I will get back to you".  Suffice to say, I never got back to him.   What happened?

Whatever the chemical is that causes a person to impulse buy started to go away and the "rational" chemical took over.  As my wife and I drove home we asked ourselves:  1) Do we really need a $1300 grill?  2) Who would move it if I had to move it again from the original location?  3) Wouldn't a $60 weber grill do a good enough job?

The answers came back:  1) NO,  2) Who knows and 3) Probably yes.  Therefore, no purchase and I went on my way (For the record, I did not even buy the Weber grill).  So, what are the lessons here:

1) If he had same day delivery I most likely would have bought it.
2) If he was willing to bring it around to my backyard (or even just help me) I definitely would have bought it.

The key lesson here is same day delivery makes a difference!  It is a differentiator and it drives sales.  Not only did I not buy this on this day, I most likely will never buy it.  Too hard.  Make it easy for the consumer and make it fast and you have a sale. Allow the consumer to think about it, and you could easily lose the sale.

This lesson is learned in reverse by the people who hawk timeshares in Vegas.  I once went to their pitch to get free show tickets (I had no intention of buying one of these).  I asked the sales person, trying to be polite, to let me look at the information over a few days and I would get back to him.  He said to me, "No one will buy these if we let them look at the information...".  Wildly honest but what he realized is the ability to deliver same day (in this case, same hour) took advantage of the adrenaline rush going on during the sale process - it assures a sale.  They delivered it same hour by having all the paper work ready, the financing there on site, the keys etc. etc.

You may ask, well does same day delivery really help since the person can just return the product once the urge is lost?  This question ignores both the normal inertia that exists in a consumer and the high desire to tell their friends, spouses, and themselves that they did not make a mistake and it was actually a brilliant purchase.

Ever hear someone defend buying a timeshare?  It is almost laughable listening to them try to explain it but, alas, they do.

Speed and ease of delivery drives sales - it is plain and simple.

As a consumer though, I was rescued by ACE not having same day delivery!

Inventories Continue to Grow

For those who read this blog regularly, you know a key metric I track regularly is the Inventory to Sales ratio.  The reasons I do this are threefold:

• As a supply chain professional and one who takes pride in our industry I feel this one measurement is a core metric to how the industry is doing.  Of course, inventory is built when information is less than optimal and therefore we miss forecasts or we feel the only solution to this problem of lacking information is to build inventory stocks. Finally, we all know inventory ties up working capital, has the problems of obsolescence, damage and shrinkage and consumes resources.  All of which is bad for business.
  
• It is an early warning indicator of economic issues.  As either consumers stop buying or business start overproducing (due to irrational exuberance to borrow a phrase) inventories build.  So, it is a signal that one of those two things are happening and sooner or later either the consumer has to come raging back (highly unlikely given the wage situation) or businesses will start cutting back.
  
• It is an indicator of pricing in transportation.  As inventories build, inbound will start slowing, transportation capacity will become in excess and ultimately prices fall for transportation.  It is, in fact, that simple.
  

As we look at the latest Inventory to sales ratio we see continuation of a troubling pattern:

Inventory to Sales Updated 4/2016 Data through February 2016

What we see is inventories have increased pretty dramatically since 2012 and do I dare say this - they are almost at recession levels.  

This is not a good indicator for the economy or for transportation in general.  Perhaps the wild bull is coming to an end. I guess we shall see but one of two things has to happen - consumers better start buying or businesses better slow down.  

Pricing Declines in Both Truckload and Intermodal

The promise of "pay me now so you don't have to pay me later" continues to be a mirage.  With the release of the March CASS reports we saw that pricing actually declined in the truckload sector YoY for the first time since 2010.  Intermodal continues to be a problem as well with significant price declines.  Intermodal declines were 3% YoY in March and 2.2% in January YoY and 3.8% in February YoY.

This all stems from the fact there is overcapacity.  Further, as shippers get far smarter in terms of network design, designing products for efficient shipping and inventory management, the problem of overcapacity is being exacerbated.  Avondale partners believes the "risk" is to the downside of 1% to 2%.  The overcapacity in rail can be attributed to the sharp decline in some commodity shipping such as oil.   The other part playing havoc on transportation is the Inventory to Sales ratio which I will discuss in my next posting.

At the end of the day, this continues to behave as a commodity market.  The idea that you should "pay up" during overcapacity months / years so you are protected when the market "turns" is a fools errand.  Of course, you should always be a good partner, you should always work to turn drivers fast, make their life easier and work with your carrier partners to balance demand.  But those are things a good business person does anyway.  Just makes sense.

But, to think you should "pay up" to be a "shipper of choice" is crazy and will only put you in a position of uncompetitiveness relative to your peer group.

Another Year of Dashed Hopes for Trucking

Well, another year starts off with the "this is the year for trucking" story and it is starting to look like it is another year where it is going to fizzle.  I am traveling a lot this week so it will be tough to get into the details here.

Having said that there are clearly two big data points.  As the Wall Street Journal pointed out in an article titled "Trucking Stocks Tumble on Downgrade, Pricing Outlook", the bid season has not gone well for truckers.  This generally means there is excess capacity and that is driving lower prices.  An interesting quote (which blows apart the "shipper of choice" boloney over the last few years) is the following from a Stifel report lead authored by John Larkin:

"Many shippers have effectively elected to toss to the wayside any talk of partnerships, relationships, cooperation, collaboration, etc.,” the report read. “Shippers are under enormous pressure to cut transportation costs and seem not to be satisfied with the massive fuel surcharge reductions racked up over the past year and a half.”

If you don't believe that then use the trucking companies' actions to tell you what they think.  FTR reports Class 8 Orders at Lowest Level since 2012.  Having worked in the trucking sector I know as soon as the trucking executives see a prolonged slowdown the first thing they do is cancel truck orders.

Back to the future....

Class VIII Orders source:  FTR

Supply Chain Talent As Competitive Advantage - Traction

I recently published a posting about the Ascendency of Supply Chain and the proof point I used was Amazon suing Target over "poaching" of supply chain talent.  20 years ago no one cared about hiring someone from supply chain.  Now it is seen as "stealing competitive secrets".

Well, the good news is the Wall Street Journal has caught on to this and after my post, Loretta Chao wrote her own well written article titled: Supply-Chain Lawsuits Mount Amid Drive For Logistics Talent.  You should read it.

Leadership in Distribution Centers - Employer of Choice

It is a fierce battle out there for great talent in warehousing.  I mean for all talent - hourly and salary. This segment has really become the "manufacturing" of the 21st century.  While everyone seems to talk about manufacturing, hoping for jobs, what they really find is manufacturing has come back to the US due to high levels of automation and robotics.  It is warehousing and distribution, as E-Commerce grows, that will drive supply chain employment.

Back in September we were warned about the shortage of warehouse labor at both Marketwatch and in the JOC in an article titled: US Warehouse and Logistics Sector Warned of Labor Shortage.  Both of these predictions have come true and they are even more pronounced during the "busy" season(s).  So what is a leader to do?

One thing you do not want to do is get into a wage war.  That does not solve any problems for anyone.  The real activities which influence great employees to want to work in your warehouse v. the competitors are three-fold:

1. Treatment:   It should go without saying if you do not treat people with dignity and respect, they will not want to work with you.  This is true for managers and it is true for hourly associates.  While this seems like a truism, in my travels and consulting, I find I almost always have to remind people of this.  Activities like communication, sharing business results, and involving people in decisions all show people they are being treated as true partners in the organization.
   
2. Environment:  Make the environment a place you would want to work.  If you would not want to work in the location why would you expect others to want to work there?  This does not have to mean you have a fancy place.  But, it does mean, attention to cleanliness, a place for people to take breaks that you would be willing to take a break in, a safe environment and ergonomically friendly all will lead to people wanting to work in your location.
   
3. Ability to Advance:  Nothing makes people more mad than when they see people coming "off the street" getting the benefit of the doubt over current employees.  People want to work where they are respected and one sign of respect is to offer them training and opportunity for advancement.  

Finally, yes, you do have to pay competitively (that goes without saying).  However, if you do not do the three items I mention above, your chances of having a great workforce, with low turnover and high engagement, will be next to nil.  

A great recent read is over at Forbes on Line and the article is titled: Employee Engagement is Not Just a State of Mind.  I will not recite everything it says as you should go and read it however the author lists 4 key factors for engagement:

1. Recognition
2. Planning
3. Communication
4. Contribution

Every manager needs to have an employee engagement plan.  It needs to be written, tracked, measured and adjusted as needed.  You may find, if you are a center manager, this is the biggest leverage point you have to drive both quality and productivity.  

For some more ideas, read a great article over at Harvard Business Review How One Fast Food Chain Keeps Its turnover Rates Absurdly Low.  We in supply chain can borrow these ideas.  

The Ascendency of Supply Chain

I found the articles recently about Amazon suing a supply chain executive fascinating.  To recap, a top executive (although not the very top) of Amazon was hired by Target to bring life into their supply chain - specifically e-commerce and the Omni-Channel portion.  Amazon is suing saying he is violating a 18 month non compete clause and saying he will cause harm to Amazon by bringing supply chain "secrets" with him. 

20 years ago no one would have thought anything about supply chain was so secret and provided so much competitive advantage that they would sue for hiring a single person.  I believe this action really shows how high supply chain has risen as one of, if not the, competitive advantage of a company. 

For those thinking of entering our field, be rest assured, you are no longer a "back office cost".  You are now a front office, revenue generating portion of the business.  You are providing the competitive advantage and differentiation for your company. 

Congratulations supply chain, you have made it!

Amazon as a 3PL

Back in October I asked the question:  What is Amazon? A 3PL, Retailer, IT Company, Delivery Company?  And, I answered the question by saying:  All of the Above.  Now it is February and with the advent of Amazon registering as a NVO and with their purchase of trailers it has become clear - they are a 3PL and most likely will quickly become the best there is.

Amazon has such a unique ability to do things very quickly, apply incredible technology and put rock solid processes in place (supported by the incredible technology) that when they do this it seems like it comes out of no where.  But, of course, it does not.  I have written many times that Amazon could easily do this with their fulfillment capabilities.

In Supply Chain Quarterly, the magazine asks this question:  Amazon a 3PL? The most interesting part of this article is the "head in the sand" responses from some of the major company CEOs.  Only 6 of the CEOs considered Amazon to already be a 3PL.  Let's look at the basics of what Amazon does:

1. They have huge warehouse / order fulfillment centers
2. They take in product both from themselves but also from other retailers and e-tailers
3. They provide customized fulfillment
4. They now have trucks and do deliveries
5. They are building out a courier service for final mile. 

Looks like a duck, walks like a duck, acts like a duck - pretty sure it is a duck.  Although, as was outlined in Richard Tedlow's seminal work "Denial:  Why Business leaders Fail to Look Facts in the Face - and what to do about it" we know that history is full of companies who cannot see change even though it is staring them in the face.  Think Sears ignoring Wal-Mart and then Wal-Mart ignoring Amazon. 

Let's close this once and for all.  Amazon is a 3PL.  Amazon is a cloud computing company. Amazon is a retailer (Now including bricks and mortar).  And, most importantly, if you are in those businesses, Amazon is coming after you.

Read this book and you will see how easy it is to ignore the facts - but you do that at your own peril.

More Tough News for the Rail Roads - Carloads Dropped 16.6%

The January AAR report has come out and it is not pretty for the railroads.  Of course coal has been a big driver but it looks like all commodities are in a decline and that has really hurt the rail. Intermodal is up 3.4% which is "ok" but nothing spectacular.

Bottom line is the economy is just slow and not sure when it will come out of this.  I have not written my "Macroeconomic Monday" report in a long time but I can tell you that the dynamics of this economy are very slow growth, tepid employment and lack of wage growth.  All of this is driving the consumer to save more or pay down debt which limits macro demand.  This is always first seen in the transportation of goods.

More to come... Buckle up for 2016.

Courier and Delivery Driver Employment Fall; Warehouse Employment Up

Post the holiday e-commerce surge, the inevitable arrived.  According to the Wall Street Journal, courier and delivery jobs were shed quickly by companies with lower demand.

Warehouse employment continues to outpace the overall economy.  Just go to towns like Lakeland, FL, Memphis, TN or Nashville and you can see that for mile upon miles.

What is fascinating about all this is this means buffer inventory is increasing. The graph below shows the incredible climb of inventory relative to sales in our economy.  Wasn't this what all this fancy supply chain software was supposed to solve?

Inventory to Sales Ratio

We are back to roughly 2002 levels which, if you measure supply chain efficiency by inventory levels you could say that we are in a "lost decade" of supply chain improvement.

Is Your 3PL Working for You The Shipper or For The Carrier

Anyone who reads my blog regularly knows I am not a fan of this carrier creation called "be a shipper of choice".  To simplify my reasons I break my reasons down into three categories:

1. The carriers themselves speak as a commodity.  They always talk about the fact that if demand is greater than supply - prices will go up.  This is the text book description of a commodity.  I have never met a carrier who, in a time of rate increases, tell you "We will take less price because you are some magical "shipper of choice.
   
2. It takes all the requirements for continuous improvement off of the carrier's shoulders and puts them on the customer.  I have never seen an industry (except for maybe the airlines) where the supplier's strategy is to essentially go to war with their customer.  This is the new trucking industry.  The icons of the industry (Don Schneider, JB Hunt - the man) would never do this. They would compete for customers by providing a higher level of efficiency and better service. Not try to put fear in the customer.
   
3. This is a race to the bottom for shippers.  Imagine if everyone followed the checklist of "Shipper of choice".  Now, all shippers are equal and who is actually the shipper of choice?  Well, what happens is the carriers ratchet up what they want out of you.  This is a perverse way to run an industry.  

To help with carrier management and to help shippers navigate this craziness some hire a 3PL.  But, what happens when the 3PL is in the tank for the carrier?  Well, we know what happens - the 3PL tells the customer they have to pay "higher rates" to ensure capacity (any third grader could have figured that out - no need to pay a 3PL).  But, of course, the 3PL makes more money off of these higher rates so on and on it goes. 

So, here is my checklist for how a CARRIER can be the CARRIER of choice:

1. Provide great value - service for price.  Overdue the service.
2. Understand your customer's business so you can understand why they are asking for what they are asking for. 
3. Do what you commit to do - don't over commit. 
4. Don't complain about stupid stuff.  I love it when a carrier complains that we should level load our freight volume.  Great request.  What is a person to do, tell the consumer (who is the only one in this entire chain who is actually injecting money into this supply chain) they can't buy more product on the weekends?  They have to buy as much on Monday - Thursday?  
5. Communicate, communicate, communicate.
6. Use technology to everyone's benefit. 

The Transplace checklist for shipper of choice is one example where a 3PL is no longer working for their customer.  They are working for the carrier.  

Estes is Fined by EPA for Air Violations - Another Volkswagen?

I just saw an interesting news article stating the EPA has fined Estes $100K (Plus Estes has to pay another $285K in projects) because they violated the California Truck and Bus Regulations.  From the news article:

"EPA Regional Administrator Jared Blumenfeld said Estes violated the California Truck and Bus Regulation dozens of times between 2012 and 2014.

The regulation, adopted in 2009, requires that all commercial heavy diesel trucks and buses operating in the state be equipped with diesel particulate filters (DPFs), which limit toxic emissions."

In light of the Volkswagen issues where the car company clearly violated environmental laws on purpose, I think we are going to see a lot more of this.  As we all know, with regulations companies take "calculated risks" and one of them appears to be around meeting environmental regulations.  My advice to compliance departments is they may want to tighten up what they are doing.

There were also two very important items embedded in the article and the first one has to do with sub-contractors to Estes:

"In reaching the settlement, Estes cooperated with federal investigators, admitting that the company or its subcontractors in California operated more than 80 trucks between 2012 and 2014 that were not equipped with diesel particulate filters"

What is fascinating in that statement is they are taking direct responsibility for their sub contractors. So, one way "around" the laws is not to just broker freight and say it is their fault.  Looks like Estes will own that liability too.

Finally, the article states:

"Sax said this was “the first of many cases” the EPA and CARB will bring against trucking companies in order to enforce the California Truck and Bus Regulation.

Blumenfeld confirmed the EPA has been investigating out-of-state trucking companies operating in California since the spring of 2014."

If that is not a direct statement of intent, I do not know what is.  Clearly, companies had better be careful with what they are doing in California and I would suspect you will see a lot of new trucks headed West soon.

I think the regulators are getting emboldened as they are finding more and more of this abuse. There also was a case against Samsung where they had defeated the Energy Star ratings in refrigerators and in that case had to compensate every consumer. We all know of the troubles International / Navistar has had.

If I were at a trucking company I would be less concerned about "more regulation" and far more concerned about whether my company was meeting requirements in the first place.  

Companies Mentioned in This Article:

1. Estes Express Lines
2. Volkswagen
3. Samsung
4. CARB - California Air Resources Board
5. EPA - Environmental Protection Agency

Omni Channel and The Ever Persistent Discussion of Final Mile

Over at Logistics Viewpoints (A blog you should be reading) Chris Cunnane gave us a sneak peek into a survey he conducted with DC Velocity magazine about different final mile modes and their current and anticipated adoption rates.  The results were not overly surprising.

However, the one that really stuck out at me was the feedback on the use of crowdsourcing  options. It would seem to me that forward looking executives, especially in the light of Amazon's Prime Flex announcement, would be more interested in this option.  Only 27.7% have said they include this option in their future plans.  

I then go back to think about the talk Dave Clark, SVP of Worldwide Operations and Customer Service at Amazon, gave at the recent CSCMP Annual Global Conference (AGC).  One of the most intriguing parts of his discussion was the idea of innovation and the categories of "one way" and "two way" doors.  Let me digress and describe this for you:

When innovating, ideas can be categorized into "one way" and "two way" doors depending on your ability to back out or recover from the idea.  The brief definition:

• One Way Door:  This is when the idea, once launched, either cannot be taken out or would be too costly to change back.  This type of innovation requires a lot of deep thought, analysis and modeling because once you go in, you are all the way in (See my posting on Cortes' boats).
  
• Two Way Door:  This type of innovation is one that you can experiment, pilot and then recover or back out if it does not work.  Thing Google Labs on this one.  How many things has Google launched, decided it does not work and just stop.  No harm, no foul.
  
  A two way door innovation is one you should develop quickly and try it out.  Worst case you will learn something and best case is it will work.  If it does work, because you moved so quickly, you will have incredible first mover advantage - something that is vitally important in the world of fast follower copy cats.  

It strikes me that crowdsourced final mile delivery is something that falls into the Two Way Door category.  It will cost some R&D dollars to develop but that is about it.  You can launch, manage, learn, adapt then either pull the plug or make it part of your core processes. 

Which is why I am so amazed only 27.7% said they are even thinking about it. 

But then again,  I once heard a trucking executive in the 90's say, "We will never do business with the railroad".  Some companies innovate and some whither.  Those are the only two choices.  Not innovating is not an option.  

Fuel Prices Go Down... UPS and FEDEX Raise Fuel Surcharges

If there ever was proof that the entire industry's structure of fuel surcharges is just a bunch of smoke and mirrors, this event proves it.  Recently, both FEDEX and UPS announced they are raising the fuel surcharges even though their fuel costs are down by over 30%.  They offer this absolutely absurd argument that it is this way because of the increase of heavier packages going to more retail locations.  Both they claim increase fuel consumption.

Of course, they do not give you a reduction when the new engines provide better fuel consumption or they use CNG vehicles or any of the other many things that reduce fuel costs.

The bottom line is that the shipper should know that even in the truckload and intermodal space industry fuel surcharges in no way have anything to do with fuel.  They are built on false indices, with bad data and the shipper has just had to accept it (unless you use Breakthrough Fuel in which case you are one of the leading shippers who are really taking ownership of your fuel costs).

The argument that FEDEX uses is really laughable.  Watch out as these companies are going to continue to add charges, adjust tables and overall just obfuscate what you pay in packages to justify what appears to be a pretty bloated cost structure.

We will keep an eye on this and report as it continues to develop.

Full Disclosure:  I was an employee and customer of Breakthrough Fuel.  I bring them up because still to this day they are the only company (literally the only one) that appropriately deals with these ridiculous charges.