March 28, 2018
TranzAct Technologies in conjunction with NASSTRAC
Summary of the Webinar Discussion: Note, this is a summary. For the exact quotes and slide deck referred to below, please access the Storm Center at www.tranzact.com.
For the full slide deck and audio replay of the webinar, go to:
Jeff Rogers – CEO, Universal Logistics
Dave Yeager – Chairman & CEO, HubGroup
Greg Ritter – Chief Customer Officer, XPO Logistics
Tracy Rosser – Senior VP, Transportation & Supply Chain
Dave Venberg – Senior Director, Transportation & Logistics, Ardent Mills
Jeff Rogers: I can honestly say my network is 100% full. I never have a driver not being utilized aside from their rest time. From my perspective, I am trying to make decisions as to how to best use my resources every day. It is an either/or, not a yes/add. If I am going to add, I have to take resources away from somewhere else. Those are tough conversations to have. Rates are up, but the cost to hire drivers is going up just as fast. There are 10 flatbed loads for every driver I have. When ELDs come in on April first, I have no reason to believe the government is not going to take a hard line on enforcement. That will clearly have an impact.
What does it mean to be a shipper of choice? Not the shipper who is willing to pay the most. Drivers have been treated as a commodity for 20 years. We need to treat them with respect and help them get out of your docks and on to their next destination. Especially with hours limits now. It’s more about efficiency than price. How do you work with the resources being provided?
Dave Yeager: As we reported our fourth quarter results, it was the strongest I have seen in decades. The strained capacity is continuing the first quarter of 2018. Class A truck sales increased 40%. The strong economy with limited capacity resulted in higher costs for trucking and intermodal companies, because wages are rising quickly also. That’s going to be passed along to shippers. Motor carrier rates will double this year.
Rail service is worse year-over-year. I think it has plateaued with modest improvement over the year. There is service inconsistency. That creates a labor intensive environment with added costs or manual intervention, etc. We average 15 days to turn a box right now, normally it is 14. That means about a 10% increase in cost.
We break customers down from transactional up through strategic. You can’t just become a strategic customer. It requires a corporate and cultural commitment to work with us to make the cost-to-serve as low as possible. Turning equipment and drivers quickly. Ultimately, they can end up with lower costs as well as guaranteed capacity. It is also a good customer who uses multiple offerings. We will price transactional shippers as far as how they fit our network. But they will be on an as available basis, so they are last to receive capacity. Its difficult for a transactional/procurement focused companies to change, because they really have to make a commitment.
Greg Ritter: In 39 years of doing this, I have never seen this type of market. It was somewhat predictable and some people were able to see this coming and make anticipatory changes to their supply chain.
What we are seeing today that we haven’t before is the level of anxiety from customers, but the positive is the discussions we are having with our customers to help educate them on what is happening and why. I believe the worst is yet to come, with a significant shutdown in April with ELDs. A tsunami effect could happen. Forklifts at an all-time high, which impacts freight.
Shipper of choice—the quality of your freight. How you treat drivers. Speed of turnaround. Are you adjusting to schedule changes resulting from hours of service? The positive is we have had more creative conversations around freight with our customers—mode agnostic conversations. We can’t think of freight as just truckload freight any more.
The drey market doesn’t have capacity—if we had 5,000 more drey trucks, we would still be at capacity. Houston Port had 20% growth last year and will have more growth this year.
Look at your supply chain and how can you make good choices not just based on today, but on what will happen 12 and 24 months from now. I don’t see any significant changes until at least then, based on the economic output. This is a market that has never been seen before. It’s a new reality. Open your eyes to that and be ready for change—have conversations with us to creatively adjust your freight.
We are looking at the spot market not just at prices, but what is getting carried over to the next day. That is really going to tell you what’s going on.
Tracy Rosser: We have 8,000 of our own drivers running regional and 6,500 of our own tractors. We purchase van, reefer, intermodal and flatbed and are seeing fundamental demand pressures. We have seen shock in the system since last October. We had 3 of the top 5 most costly hurricanes hit and create significant demand in Q4. Still having a lasting impact. Significant winter storms, as in 2015, in the Northeast especially—resulting in spotty capacity. Rail network has had inconsistency.
So we are looking to find out what normal now looks like when spring gets here. The “How” for us is embedded in our DNA. We look for inefficiencies and waste at Walmart. Our standard practice is to find those and improve them to pass along savings to our customers. It has to be looked at as a complete supply chain effort. You have to understand your freight volumes. A good forecast helps your carriers plan better for their assets. We think of ourselves as strategic partners, understanding your freight characteristics. What is efficient and what is not?
We view a carrier standpoint (our fleet) as well as a shipper (hired assets). We are trying to reduce overall network miles and demand by smart network optimization. We are trying to take full advantage of the cube when we ship, and make sure our customers are shipping what we order so they don’t waste part of the cube.
We are looking at optimizing to have multiple ship points if necessary to eliminate stress if there is a single ship point trying to service to entire country. We make smart ship points. A driver has 660 minutes to drive in a day. Keep ‘em moving. Safety is number 1. Then be available 24/7 to ship. Those who shut down at 3pm or for the weekend lose an opportunity for capacity. Engage with your carriers for planning. Unplanned volume can really get pricey. Data can be your friend. Figure out waste, fined the cause, work to eliminate them.
Dave Venberg: Our ingredients feed 100 million people a day in the US. Capacity has been tight for us—LTL, TL, bulk rail, intermodal. Rail a challenge in service. Hope to see improvements as we hit spring.
How do we win in this storm? To us, it is not only navigating, but how do we win? It will separate those with a strong transportation strategy from those who react to the market.
This comes down to 3 things. One is we want to be a trusted partner not only for our consumers, but our vendors and carriers. It’s a value of ours. We boil it down to 3 areas.
We want to build long term relationships with our carriers. We want to be strategic. We want our carriers to be strategic with us as well. We have direct conversations about that.
We have focused on being a shipper of choice. That needs to be defined by the carriers—not the shipper. We need to listen to the carrier and change. And it is about efficiency and respect. We surveyed 800 drivers to rank us on paperwork, efficiency, parking conditions, our facilities, etc. We got some good feedback, but some that helped us make some real changes to our facilities and practices.
You also have to work with your receiver customers to make sure they are receivers of choice and also treat your carriers well. A driver who can drive 11-14 hours spends only 6 driving, because they are dealing with other stuff the rest of the time. That’s an opportunity for us to help if we can turn them around faster. We have to do our part. We have started to talk to our carriers to find out if any drivers have quit because of our freight. We need to know that. That will help them with retention, which is an important role we play.
We also want to select the right mode to maximize each shipment. Flour is a heavy commodity, so we maximize payload on every mode. We have shipped the same amount of product with 5% less freight.
Technology. As shippers, you have to know how it can enable your processes. Understand what’s going across your network—globally as well as per lane. Detention charges. Loading and unloading times. Track and trace. We are doing that and mining a lot of data that helps us to be a better shipper of choice and ask the right questions to our carriers. Though capacity has been tight, we have not struggled with capacity, which is the fruit of three and a half years of labor on this.
Mike Regan: Why can’t we find drivers?
Jeff Rogers: Quality of life issues have changed over the years. They don’t want to spend all day in a truck, especially feeling like big brother is watching them. But wage is the biggest thing—drivers aren’t making much more than they did in the ‘80s before deregulation. When you think about how critical the job is—the average driver is probably in the $45,000-50,000 range, but should they potentially be $75,000? Wages are increasing for other jobs, they should here as well.
Greg Ritter: We definitely need to raise wages, but also quality of life and respect. You need to have the back office support thousands of miles away in case something happens to the family. The hassles of the job are the deterrents. When enforcement starts in April, if a driver feels you can’t do what he needs, he will decline that road even after accepting it. One national carrier was looking at those rejecting their offer to join their schools, and one reason potential drivers were declining was the view that driving is not a long term job any more due to autonomous trucks.
Dave Yeager: Another reason: We are fighting for the same pool as construction and others, and you can’t drive a truck until 21, whereas the others can start at 18. Today, millennials don’t find the lifestyle appealing and so we have older drivers and not new young ones.
Tracy Rosser: We pay pretty well, but what I have learned from the Walmart drivers is that they are well respected within the organization with access to me and to our CEO. I take rides with our drivers and talk to them to see what a day in the life looks like. So does our leadership team. Letting them know what they do matters and they are connected to a purpose and mission, there is value to what they do, is important. I started as a dispatcher with a board of 25 drivers, and they just want to be heard. They value when their voice is heard and there are actions relative to what they have shared.
Doing those types of things is important. Leadership needs to understand what is important to those drivers. Day to day operations with drivers also are important. Think about if you are a shipper a driver will simply turn away from. They have a choice.
Dave Venberg: Our CEO who has come out and engaged with drivers. I expect shippers will need to be very friendly to win in this environment.