Partnerships push value

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Fleet Owner / November 5, 2015

Better collaboration throughout the supply chain is leading to more driver-friendly freight and higher yields for all involved

Collaboration is probably something many trucking companies don’t feel the need to engage in at the moment, especially with capacity getting so tight. And many of their customers and competitors freely admit as much.

“We believe that the trucking industry—and the truckload segment specifically—is starting to experience a paradigm shift where carriers will increasingly be in a more favorable position to choose who they serve and who they provide capacity to,” Paul Newbourne, senior vice president of logistics operations for Armada Supply Chain Solutions, says.

“In our view, it will be even more important than it has been in the past for shippers and receivers to make sure that they are doing everything they can to present themselves as customers of choice for their carriers,” he stresses. “At the core of this is shippers finding ways to help deliver improved efficiency to their carriers while at the same time generating value for themselves.”

It’s not quite so one-sided, though, because many fleets are finding that just getting more money to haul freight might not be nearly enough to solve the myriad cost issues facing them.

Jett McCandless, founder and CEO of CarrierDirect, an advisory firm to trucking and logistics providers, explains that there is little appreciation for the steep increase in motor carrier costs over the last six years. In percentage figures, he indicates that while trucking rates are up 9% since 2009, the cost of trailer and tractor parts is up 14%; the cost of tires is up 50%; the cost of trailers has increased 18%; the cost of tractors is up 11%; and driver compensation, broadly defined, has increased 16%.

Erik Malin, executive vice president at CarrierDirect, adds that his firm projects the overarching theme for the freight industry is that truck capacity is not going to get better.

“Driver pay, especially, is just not where it needs to be,” he says. “Some say it needs to be between $60,000 and $80,000 to recruit millennials.”

Thus, in the view of some fleets, the potential magnitude of trucking rate increases required to address those cost issues may be too large for shippers to take all at once. As a result, that’s spurring the use of more collaborative initiatives, explains Derek Leathers, president and COO of TL carrier Werner Enterprises.

“We lagged for a time [on rate increase] because we fixed shipment issues,” he explains.

“We collaborated with shippers; we worked together to find yield for us and service and capacity for them.”

Leathers stresses that from here on out, “we have to price for shipper practices” in terms of the impact they may have on Werner’s 9,000 drivers.

“We recognize turnover at an account level now,” he says. “We cannot afford to put drivers in a situation where we’ll lose him or her over [shipper dock practices].”

Safety with sharing

Armada’s Newbourne adds that there is a safety aspect to such shipper practices as well.
“All the carriers we talked to have a first priority on safety—safety for the public as well as for the safety of their driver,” he explains. “Yet apparently they are still routinely getting loads tendered to them and pressure by certain shippers to do things which would jeopardize safety.”

That includes issues like requiring drivers to speed, exceed their hours-of-service limits, or even “run around scales” in order to meet the shipper’s delivery expectations.

“This seems like a good opportunity to collaborate to find the right solution to meet that shipper’s needs without exposing a carrier or the public to additional risks,” Newbourne emphasizes.

“Every carrier [Armada talked to] also expresses concerns about the treatment of the driver at shipping and receiving locations,” he notes. “They cite regular reports and feedback from their drivers of unprofessional and/or rude treatment by facility personnel as well as a lack of simple, basic necessities, such as access to restrooms or vending services.”

To combat those and other issues negatively affecting carrier operations, Armada invested in what Newbourne calls a “field services team” that’s focused full-time on identifying trends and behaviors that add value to the supply chains of Armada’s clients.

“They are also responsible for initiating followup to make the necessary improvements by engaging those stakeholders to change process and protocols in order to get better results,” Newbourne points out.

For example, he says Armada’s field services team identified a situation where excessive Friday volume spikes created both service and cost issues for a shipper and contracted carriers alike.

“They subsequently worked with our [partner] carriers and the shipper to develop a business case that resulted in the shipper opening for a half-day shift on Saturday to accommodate a portion of what had been the Friday volume surge,” Newbourne explains.

“This resulted in net savings to our client in the low six figures, strictly as a result of identifying this problem, working together to resolve it, and being able to reduce spot market [capacity] buy in excess of reefer run time.”

Newbourne cites another example as a personal favorite. There was an instance where Armada’s field services team identified an excessive loading time situation at origin and excessive trailer drop time at destination. On top of that, the receiver at the destination was actually running the reefer units dry.

“By working with both the supplier and receiver, we were able to help the supplier identify some process improvements,” he says. “We not only helped reduce loading time, we were also able to work with the receiver to make them aware of the cost implications of their behavior.” The net result? Lower origin load time, heightened reefer turn time at destination, and a 15% reduction in the cost of servicing that one freight lane.

“The key to this solution is the collaborative approach with all of the stakeholders,” Newbourne stresses. “It is critical that they always find a solution that is a win-win for everyone. Now, not all of the wins are equal and sometimes it appears one side might give a little bit more. But everyone needs to win.”

Technology is king

Certainly, cost savings shared between carriers and customers are a good thing. But can the same collaborative benefits be found for nominal competitors?

CarrierDirect’s Malin believes so and cites the acquisition of Coyote Logistics by United Parcel Services earlier this year as an example.

On the one hand, he explains that leveraging Coyote’s truckload density will help UPS to limit backhaul and deadhead miles within its own network, while in turn Coyote can now offer a higher service-level product at highly competitive rates to shippers.

On the other hand, though, he says the existing relationships Coyote forged with primarily LTL carriers prior to its acquisition benefits UPS as well, as it now gains access to “surge” volumes Big Brown cannot handle during season freight peaks.

“The transportation market is really agnostic. That’s why carriers will continue to do business with Coyote because of the value Coyote brings to them,” Malin points out. “Asset network optimization is a massive strategic initiative for LTL and TL carriers in the future because backhaul and deadhead miles are really huge [operating ratio] killers.”

He says it also demonstrates that technology is king and will remain the key to unlocking the full value of collaboration. Winning carriers will be able leapfrog dated electronic data interchange systems that are plagued with stale and often misleading data and move in the direction of API or automated program interface technology.

“API allows all parties—shippers, carriers, and brokers—access to real-time pricing, capacity, and availability data,” Malin explains. “Similarly, shippers, carriers, and brokers can adjust pricing and operating strategies, on the fly if you will, to maximize profitability by ‘intelligently reacting’ in an automated fashion to the freight market conditions that exist right now and not yesterday, last week, last month, or worse yet, last quarter.”

Real-time access

Access and reaction to real-time data will separate the winners from the losers in the carrier and broker worlds but will also enable both to maximize return on investment.

“This can become a symbiotic, mutually beneficial relationship that can, in turn, help shippers reduce their freight transportation spend through what amounts to continuous supply chain optimization,” Malin argues.

Armada’s Newbourne, though, cautions all the parties involved that collaboration is difficult and will remain so.

“It reminds me of sustainability initiatives,” he says. “Inherently, it always seems to be the right thing to do. But it is difficult to do, and the biggest challenge is making sure it has an economic benefit.”

From Newbourne’s perspective, it also means changing legacy behaviors via collaboration—moving to 24/7 shipping/receiving facilities or using more drop-and-hook operations to improve tractor and driver productivity, he explains.

“Another thing that we do is work with our stakeholders to try to optimize what they are actually putting on the truck because we have found that in some lanes they are ordering 22 pallets, but they are not taking advantage of the full cube/weight capacity in the vehicle,” Newbourne points out.

“The more efficient the truck, the better utilization you will get out of it and the more loads you get out of it,” he continues. “If you can get better utilization through better turns, you are in a potentially better position to pay your drivers more and buy more equipment without raising your rates.”

Collaboration tip sheet

Paul Newbourne, senior vice president of logistics operations for Armada Supply Chain Solutions, says there are seven key areas of carrier operation ripe in his estimation for positive change through collaboration with shippers and other supply chain participants.

They are:

- Carrier load/unload dwell time

- Days of the week shipping volumes

- Weekend shipping options

- Holiday/severe weather planning

- Order lead time and date changes

- Accessorial cost management

- Scheduled shipping programs

He stresses, however, that those areas cannot be properly addressed via collaborative undertakings unless the following seven critical points are incorporated:

- Safety needs to be a priority focus.

- Operations must comply with the law.

- Truck drivers need more consideration.

- Two-way communication is essential.

- Sustainability is everyone’s concern.

- Carrier utilization must improve.

- Customers must be willing to partner with carriers.