Don't Be Fooled Again..

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

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

Another Summer and More Fear from FTR

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

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

BUT.....

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

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

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

Is Being The Shipper of Choice a Rational Buying Behavior?

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

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

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

Well, you get the feeling. 

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

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

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

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

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

I wonder when that meeting will occur?

Independent Truckers Pick Up on Mobile Apps

Re-reading a great article from the Wall Street Journal called " Mobile Apps Get Picked Up By Independent Truckers for Better Routes" (Subscription May Be Required).  While I am not sure this rises to the level of "Where is Elon Musk in Logistics" (which I asked in my last posting), I do think it is very instructive to see the growth of Mobile Apps in routing trucks.  I can remember when people were wondering if they should write computer software for independent truckers because, after all, "how many truck drivers have a computer"?

As silly as that seemed, it is equally silly to believe that truckers will not use Mobile Apps.  One of the quotes from the article is from Bryan Beshore, founder of Keychain Logistics:

"I really don’t think that the brokerages serve a huge purpose anymore,” 

Using geotracking, the smart phone and some really good software it is becoming easier and easier for the independent trucker to cut the middleman (read broker) out of the equation.  While this was doable on laptops and regular computers it was just too clunky and hard.  With smartphones, and these types of services, an independent truck driver can get their next load in the time it takes to fuel up.  This could be real disruptive technology.

Here we have "silicon valley" meets the old stodgy trucking industry.  And just like every other industry it is the new upstarts who will "disrupt" the industry because the old guard (big brokers) will cater to the allusion of protecting their  somewhat bloated bureaucracies and infrastructures.

Look out trucking executives... here come the whiz kids from Silicon Valley!

Where is The Elon Musk of the Logistics World?

I am currently reading the book  Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future I highly encourage everyone to read it.  However the book gave me pause to think about our industry. An industry that at one time was filled with innovative giants such as Don Schneider and J.B. Hunt. Now, I have to ask, where have they all gone?

Where is the innovation in logistics and supply chain?  Think of it... with all the technology, education and advanced degrees, we still shut down the West Coast ports.  And when they shut down, supply chains came to a swift halt.

I consistently hear trucking and intermodal company executives talk about "supply and demand" as a driver of price.  They say "Watch out, capacity is low.. prices are going up and you need to be a shipper of choice".  Of course, this is nothing more than commodity pricing.  They are admitting they are out of ideas and they are pricing their service as a commodity.

In my early days in the industry I was able to see huge risk takers and innovators develop the use of satellite tracking for better routing (Don Schneider) and the proper use of trains and the overall development of intermodal (J.B. Hunt).  It was a thrilling time.  Lots of change, lots of risk, great growth and huge innovation.   Today, it appears innovation is either becoming a broker or buying a company.  In some cases, financial engineering has become the innovation of logistics.

I ask, where is our Elon Musk?  Where is our Steve Jobs?  The industry is screaming for someone to innovate.


 

Inventory to Sales Ratio is Not Showing a Pretty Picture - Macroeconomic Monday is Back!

All the data I am seeing is indicating some real softness in the economy. At first, people thought it was the weather and then we went to the port strike.  However, now we are starting to see some real convergence of data pointing to a slower economy:

Inventory to Sales Ratio:

As we can see by the FRED graph, this has been on a climb however the slope has increased.  Essentially, this is indicating that inventory is building in the supply chain and there is not adequate sell through.  Every time this indicator has turned this way, we have seen ultimate softness (as companies work to right size the inventory) and this means softness in the freight markets:

You can see that this is nothing like the spike during the "great recession" however you also clearly can see that when this goes up, recessions do follow (or this is just an indicator of the recession as it happens.

ATA Truck Tonnage Drops in April; Off 5.3% from High in January:

The ATA freight tonnage index peaked in January and has been struggling ever since.  While increasing 1% over prior year, it is down 5.9% against previous month, down 5.3% against high in January and indications are the freight index will stay soft.  This will drive lower expectations for GDP and, once again, our dream of a year above 3% GDP is starting to fizzle.

While the CASS freight index is still showing some healthy gains in pricing, I really attribute that to the successful "fear mongering" of the carrier base.  If buyers of freight truly were objective about the data, they would aggressively be seeking price decreases and not stand for any price increases.  This will utimately turn down once the shippers realize what is happening and once the buyers start getting pressured by their managers to adjust the cost basis to reflect what is really happening.

Manufacturer's Alliance for Productivity and Innovation (MAPI) Adjusts Manufacturing Growth to 2.5% From Previous Estimate of 3.5%.

This is a big movement and they attribute this to four key areas from their report:

1. Oil and natural gas prices collapsed, causing a sudden contraction of the energy supply chain.
2. The strong U.S. dollar reduced growth, a result of cheaper imports to the U.S. and U.S. exports becoming more expensive to foreign buyers, as well as deflation pressure on exports.
3. Consumers spent some of their fuel savings in the fourth quarter of 2014.
4. The inventory-to-sales ratio rose sharply in the first quarter, while the inventory runoff in the second quarter slowed production growth

The interesting item of all of this is in item #3 above.  Where is all the money gone that the consumer is saving due to low fuel prices?  I think it is has gone into the bank or the continued deleveraging of households - meaning people are still not buying.

Without some real big changes, I think we are in for another "sputter" and halt type economy - we are far to used to this now.  

XPO Logistics Buys Dentressangle - Logistics Companies: Yes, Be Afraid

I have been covering XPO logistics for a  very long time on this blog.  In that coverage I have evolved my thought from thinking it was just another aggregator that will fail to it being just a big final mile player to finally saying, "watch out", Bradley Jacobs is coming after you.

Yesterday was the deal of the year (in an early year) showing that logistics companies should fear what is going on at XPO.  Yesterday, XPO purchased the French company Dentressangle in a deal worth $3.56bl.  Now, XPO is clearly a global powerhouse.

At first it looked like XPO was going to be just another big brokerage house. Then came the acquisition of 3PD and rebranding to XPO Final Mile which said they were going to own the delivery from the manufacturer (through brokerage) to your home (through final mile).  The next big acquisition in my mind was that of Pacer which immediately made XPO a leader in intermodal.

Now, with the acquisition of Dentressangle they have become truly a global powerhouse.  If you are a leader of a global supply chain you absolutely cannot ignore doing business with XPO.  The holy grail has been to find a supplier who can do "end to end" supply chain management for your global supply chain and with XPO you most likely have that now.

In all my writings on XPO logistics (which go back to November 19, 2013) I have said they are a force to be reckoned with and now that is clearly come to life.

In full disclosure, I also do business with XPO and I will tell you that the hype is reality.  This is a well run, disciplined and well led / well financed company.  Trust me - you will do business with XPO at some point.

Seeking First to Understand in Supply Chain Design

Well, it has been a long time and thank you for all the readers who stayed close to this.  I have so many thoughts to write about and I realized when I am not writing I get a bit lazy in terms of researching what best in class people are doing.  So, therefore, I need to write.

Today's posting is about "Seeking First to Understand".  As Steven Covey told us, when you are engaging with either your team, customers or your spouse for that matter, you should always "seek first to understand".  God gave us two ears and one month for a reason.  Listen, think and then talk if you have something to say.  

How does this relate to Supply Chain Design?  Simple, when engaging with a customer or one of your team you should spend the vast majority of your time seeking to understand.  Listen to what they have to say, ask probing questions (not yes / no questions but questions that are open ended such as "Tell me More...  "Help me understand...") and then think.

If you are formulating a response in your head while someone is talking then I can assure you that you are not listening.  Despite popular belief, most people and virtually all minds, cannot multitask while communicating.  If you are thinking of your response while the person is talking then you are not listening ... it is that simple.

In Supply Chain design, listening means asking:

1. What are your pain points?
2. What are you trying to accomplish with the brand?
3. What does the client's or the user of the supply chain customers say and think?
4. What does your company want to be known for (for example.. is the competitive advantage being the low cost provider, is it being the high service..i.e. Zappos provider)?

When having one of these sessions you should not respond with immediate ideas but rather with a lot more probing questions.  Then, you think.. and that may take days but you think hard. Only then will you be able to formulate a good strategy.

Thinking is hard work and it is tough because, in general, people like to see action (sometimes any action) and thinking is not an outward action.  But, trust me, it is the right thing to do.