THE POTHOLE PROTECTORS

I am sure it won’t come as any great surprise to anyone that we will not be seeing infrastructure legislation coming out of Washington this year. With the mid-term elections coming up in November, members of Congress are far more interested in campaigning and working on legislation that will make them more popular with their constituents.  Infrastructure improvement, or more accurately, infrastructure funding is not one of those favored activities.

Such things are not uncommon in election years, but our problem seems to be that with some major election every two years, Congress seems to find it difficult to get much accomplished between them. This year could be even more problematic. If the November elections result in a major shuffle of Democrats and Republicans, we could see infrastructure pushed back to Square One.

The infrastructure plan presented by President Trump in February, was disappointing to many in that it proposed using Federal dollars as incentives to encourage the states and private interests to pay the rest of the bill. During the campaign, we had been promised a $1 trillion plan, and most believed that a much larger portion of it would come from the Federal government. It is clear now that is not going to happen. Nor does Congress have an appetite for increasing the fuel taxes that go into the Highway Trust Fund. This fund is the major source of money for improvements to roads and bridges; but according to the Congressional Budget Office, between 2021 and 2026, the fund will face a deficit of $204 billion annually.

The fuel tax has not been increased since 1993; and despite pleas from truckers, the United States Chamber of Commerce, and others, Congress has consistently refused to raise the tax. Even if they did, we will continue to see deficits due to better gas mileage and electric cars and trucks. We desperately need some new thinking and some new funding ideas; but this does not appear to be the year we will get them. In the meantime, according to the American Trucking Associations, the trucking industry experiences $50 billion annually in congestion expenses. And, this is in a country that can fly to other planets, produce autonomous vehicles, and sail self-propelled boats. If it were not for safety considerations, our newer aircraft would operate without the luxury of a pilot. At the same time, we seem to be gridlocked when dealing with things like potholes. In any event, it will be at least another year before we see any Federal program.

The saving grace for some states has been the fact that they have pushed ahead and increased their own fuel taxes as a means of funding necessary improvements. Now, we have a new possible source of income for the states that choose to use it. The United States Supreme Court has made it possible for states to legalize sports betting. (Sports gambling in Nevada, where it is already legal, totals $4.9 billion annually; and across the U.S. the illegal sports betting market is about $150 billion per year.) For the states, tax income can increase significantly if they choose to legalize sports gambling. Four states already have – betting on this decision. Experience in states earnings taxes from casinos, has shown that gambling can be a significant source of funds.

Despite this possibility, the Federal government needs to act. The maintenance of a highway system sufficient to meet the country’s needs is a Federal responsibility., and our government should step forward and meet this obligation.

Written By: Clifford F. Lynch

BE DILIGENT IN OUTSOURCING FREIGHT BILL AUDIT AND PAYMENT

For over fifty years, firms have outsourced the audit and payment of transportation freight bills. While not at the top of the list of outsourced functions in the supply chain industry, one third of the North American respondents in the 2018 Third Party Logistics Study indicated that they outsource the activity.

There are significant advantages to outsourcing freight bill audit and payment (FBAP). The auditing and analytical capability of a competent provider can be extremely helpful in managing transportation function. Because of the large amount of funds that flow through the process however, extreme care should be exercised. Several years ago, the industry suffered a blow when two large freight bill payment companies left its clients with over $25 million in unpaid freight bills. One of these situations was at least partially, a result of embezzlement.

Fortunately, most of the firms in the industry today are financially sound, well-managed businesses, and we don’t want to throw the baby out with the bath water. Even so, good risk management techniques, as well as common sense, dictate the importance of thorough financial due diligence in selecting a provider. Remember, if the provider doesn’t pay the carriers, you as a client are liable, even if you have already advanced the funds.  Keep in mind also, that the FBAP industry is not regulated, making it even more critical to investigate, analyze, and verify.

While nothing can be outsourced without some risk, I believe there are fifteen considerations that can minimize the financial risk of outsourcing FBAP.

  1. Insist on inspecting audited financial statements – even if the firm is privately held.
  2. Investigate the reputation of the auditing firm used by the provider.
  3. As a client or prospective client, make sure that the statements and other documents are examined by qualified financial personnel.
  4. Investigate the reputation of the senior management of the FBAP firm.
  5. Ensure that the firm’s financial controls are tested at least annually by an independent auditor.
  6. Be sure that the funds of your firm are not comingled with those of the provider.
  7. Understand the float and its impact.
  8. The provider should have a fidelity bond which would cover possible embezzlement of client funds by employees.
  9. Detailed background checks should be made on all new employees, and credit checks should be conducted on all that would have any access to funds and/or cash management.
  10. There should be a separation of duties in accounting and cash management functions to ensure that a single employee or group of employees cannot manipulate funds or bypass controls.
  11. Verify carriers.
  12. Finally, and most important, the client should manage the relationship, not leave it to the provider.

If the client firm is large or if the amount of freight charges involved is particularly significant, there are two other controls that may be considered.

  1. Explore the possibility of establishing minimum limits on financial assets.
  2. Consider the practice of awarding contracts only if the value of the contract is below a certain percentage of the provider’s total revenue.

If you still have concerns, you might want to consider the following.

  1. For maximum protection of your funds, retain the firm to provide only the audit and analytical functions and actually pay the bills yourself. This approach will not be met with enthusiasm by the provider, but can be a safe compromise.

The outsourcing of freight bill audit and payment is an important financial step for an outsourcing firm and should be treated as such. These arrangements often are complex

and can remove significant amounts of client funds from their control. Financial due diligence must be at the top of the list when qualifying potential providers. While no outsourcing arrangement is absolutely risk free, the client should try to ensure that its funds are as safe as they would be under its own management and control.

Written By: Clifford F. Lynch

LET’S HAVE A LITTLE EQUITY

There has been a considerable amount of discussion lately about what appears to be a pending trade war with China. In an effort to “protect American business”, President Trump has announced his intention to levy a 25% duty on over 1300 hundred products currently imported from China. China immediately called the bluff and promised a 25% tariff on approximately 100 items American businesses sell to China. Farmers are especially irate about the inclusion of soybeans in the list, as soybeans are the country’s second largest export to China. Midwestern states would be affected significantly if the scenario plays out. The president’s concern is the protection of American businesses from those countries he fells are undermining our industries.

Tariffs have always been controversial because of their retaliatory nature. Every time a country levies a tariff on goods from another country, the aggrieved nation responds in kind. Many economist believe the entire exercise is counterproductive and yields very little positive results. Few would argue that the protection of American industry is not a worthwhile objective; but while we are embroiled in the U.S. – China tariff argument, there is another subsidy that has received little attention until recently. Many manufacturers and consumers have been curious about how a shopper can order a product from Amazon that will ship from China with free delivery or a minimal shipping charge. The answer of course, is subsidy by the post office; but not the Chinese post office. It is our very own USPS that is subsidizing these cheap movements.

President Trump blames Amazon for paying so little postage on domestic shipping to a floundering USPS, but the problem is in our own Washington back yard. In 2011, the post office made an agreement with the postal agencies of China, Hong Kong, South Korea, and Singapore to allow small packages to be sent to the U.S. at very low rates. This option is called the ePacket, and the rates are so low that packages from these countries can move much more cheaply than domestic ones. Wade Shepard, in a recent article for Forbes, cited an example of how the postage on a one pound package from Beijing to New York is $3.66; but shipping it in the reverse direction would cost about $50.00.  (Forget about returning anything.) Moving the package domestically would average about $6.00. But why would the USPS ever make such a deal?

International postage rates are actually set by the United Postal Union (UPU), a U.N. agency established in 1874. One hundred ninety two countries meet every four years to set postage rates. Countries that are considered to be poorer or underdeveloped pay less than those who are not. China, believe it or not, is considered a poor country. If the ePacket rates were abolished, postage rates would revert back to the UPU levels which are even lower.

Finally, just last week, in an effort to provide some equity, a bill was introduced in Congress called the Ending Needless Delivery Subsidies (ENDS) Act. This bill would force the Secretary of State to negotiate the end to all international postage subsidies by 2021. This appears to be a good step toward providing at least some protection to American vendors. There still will be issues of cheaper foreign labor and other resources, but at least we would have a more level shipping playing field. Amazon gets blamed for a lot of disruption, sometimes well deserved, but this one is not on them.

Hopefully, this new bill will move through Congress quickly. Not only would it help American suppliers, but it would make a dent in the continuing, horrific USPS losses.

Written By: Clifford F. Lynch

SPOILER ALERT

For over a year, industry pundits have predicted that in 2018, we would experience a significant increase in rates for both truckload and LTL shipments. Many were predicting another “perfect storm”.  While I think the storm might have been somewhat overstated, it appears that basically, they were correct. ACT Research has said “Clearly, truckers are entering 2018 in the best negotiating position in many years”. The expected general rate increases have been announced at 4-6%, but it looks as if we will go well beyond these. According to Bloomberg, spot rates through March 23, were 28% higher than the same period last year. FTR Transportation Intelligence predicts that even the longer term, more stable contract rates will rise by 12% this year. This compares to about 4% in 2017. While there are several reasons for the increases, i.e. weather, higher demand, etc. the most often discussed are the lack of capacity and the competition among carriers for qualified, responsible drivers.

Earlier this year, the Washington Post, following a survey of 1600 shippers, concluded that trucking capacity (or lack thereof) would be the industry’s “primary hurdle” this year. Much of the blame for the capacity shortage has been laid at the feet of the Electronic Logging Device (ELD) mandate. Since they were first suggested several years ago, it has been predicted that they would result in decreased capacity. After several attempts to block their installation, they finally were mandated to be in place by December 18, 2017. Strict enforcement however, was to be delayed until April 1, 2018. Most large carriers installed theirs years ago, but the smaller carriers and particularly the owner-operators, have resisted right down to the wire (and beyond). With full enforcement in effect, a broader adherence to the driver hours of service rules is expected, which in turn will reduce capacity. The log “fudge factor” has been taken away. It is hard to believe that forcing drivers to comply with the rules will make that much difference, but capacity losses have been estimated to be between 4 and 7%. We will know more as we get more experience. It is clear now however, that more drivers will be needed to meet the current demand.

The second contributing factor is the competition for qualified drivers. Rarely, is a capacity problem caused by lack of equipment. More often than not, it results from the lack of drivers to operate it. The shortage of drivers is well known, and I won’t belabor it here. There is an underlying issue with which we deal every day. Now however, as carriers start to compete for those in the driver pool, salaries finally are increasing. Carriers willing to pay more are finding their capacity issues reduced. Those who are not are paying the price through loss of business and increased driver turnover. According to the American Trucking Associations (ATA) driver salaries rose 15-18% from 2013 – 2017. A private fleet driver now can earn as much as $86,000 annually, plus benefits. Salaries for entry level truckload drivers have risen 15% from 2013, to about $53,000. A number of carriers have added several cents per mile to driver compensation, and some are offering substantial “sign up bonuses”.

An interesting contradiction to the driver shortage is the fact that carriers are ordering new equipment at a rapid pace. During the first three months of this year, they ordered about 134,000 heavt duty trucks – almost double last year’s purchases for the same period. The new tax laws have freed up cash for many which is being used to upgrade fleets and add capacity.

Hopefully better pay and more equipment will help negate the driver shortage and the capacity shortfall in the entire industry, but the improvements will come at a price that will ultimately be paid by the shippers.

Written By: Clifford F. Lynch

THERE IS LIFE AFTER AMAZON

Several years ago, I wrote that the three major impacts on the supply chain during my career were technology, globalization, and Wal-Mart. Recently, a colleague asked me if I was ready to add a fourth, which of course would be Amazon. A good question, but at this point, I am not so sure. Let’s take a look at Wal-Mart. When Sam Walton opened the first Wal-Mart store in 1962, he probably had no inkling of the way he would be changing the retail landscape of the country. Building on the success of that first store, by the 1970’s, Wal-Mart had begun its march through small-town America, then not-so-small-town America, and the world. By 2015, the company had 2.3 million employees, serving 200 million customers weekly, in 11,000 stores in 27 countries. In its wake, it left thousands of casualties as neighborhood hardware, appliance, apparel, and other local businesses collapsed under the weight of the competition from Walmart’s selections and lower prices. Thousands of workers were displaced, but every new Wal-Mart brought new job opportunities; and to many, the lower prices justified the job losses.

But as Wal-Mart and the local competitors and customers settled into new relationships, the company was turning to its supply chain as a major factor in holding down prices, and has been a true pioneer in the supply chain industry. Automated warehouses, huge cross dock facilities, top notch technology, sustainability programs and modern truck fleets have not only improved Wal-Mart’s operations; but the techniques and processes they have introduced have made major impacts on the operations of others.

To state that Amazon has changed the face of on-line buying is unnecessary. Electronic commerce continues to grow.  Much of the increase has been going to Amazon, and their share of the pie is expected to expand. Just as Wal-Mart did in the 1970’s, Amazon is having a major impact on the competition and employment. In 2017, 7000 retail stores closed, and so far this year, 1770 have locked their doors. Toys ‘r Us recently announced the closing of 800 more. According to the recent issue of Forbes, Jeff Bezos, CEO of Amazon is now the richest man in the world. Still, Amazon’s annual sales of $180 billion are far behind Wal-Mart’s $500 billion. If Sam Walton were still alive, he would have the richest man distinction. As it is, he has three very rich kids.

It is important to keep things in perspective.What Amazon has done is speed up the entire selling and delivery process, and through their reselling of others products, are to some extent, helping their competition. Other competitors are scrambling to find ways to provide same and next day deliveries. Amazon has opened  over 150 distribution centers to shorten the “last mile”. Through its purchase of Kiva, a robotics company, most of these buildings are equipped with robots to assist in product movement. They also employ thousands of order pickers; and like Wal-Mart, they are not known for their high wages and sensitivity toward employees.

As far as real contribution to the body of supply chain knowledge, I do not see too much. They obviously employ some very smart minds but some of their innovations seem to be solutions looking for a problem. Drones certainly a part of our future, but I do not see delivering pizzas or Zappo’s shoes their highest and best use. Amazon’s patented distribution center in the sky is pretty exciting stuff and has Star Trek fans salivating as they await the assumption of command by Captain Kirk. But a practical contribution to the supply chain? I don’t think so.

It is a rapidly changing world for the supply chain manager. Consumer buying habits and expectations have changed dramatically. Amazon and others are not just accommodating these changes, but are part of them; and supply chain managers must reeducate themselves accordingly. At the same time, we must separate the hype from the reality. This is not the first seismic change we have seen in supply chain management, nor will it be the last.

Written By: Clifford F. Lynch

COMING TO TERMS

For those supply chain managers working for firms that engage in foreign trade, one of the major concerns is likely to be the delivery arrangements – in particular, the potential for confusion surrounding the responsibility for freight, insurance, customs charges, and damage in transit. To assist in understanding, the International Chamber of Commerce has published 11 International Commercial Terms, or Incoterms, which are internationally recognized and have clearly defined both the buyer’s and seller’s obligations in common transactions.

Last revised in 2010, the new terms are divided into two groups – seven terms which apply to any mode of transport and four which are to be used for ocean and inland waterway transport only. Some managers have been confused by the terms; but hopefully, the following list and explanations will aid in understanding.

INCOTERMS FOR ALL MODES (7 terms)

Ex-Works means the buyer assumes total responsibility for the shipment. Delivery is accomplished when the product is handed over to the buyer’s representative at the plant or DC. The buyer is responsible for freight costs, insurance, export and import clearance, and all customs charges.

FCA (Free Carrier) provides that the seller fulfills his responsibility when he delivers the product to the carrier.

CPT (Carriage Paid To) provides that the seller pays transportation costs and export clearance charges, but the buyer pays for insurance.

CIP (Carriage and Insurance Paid To) This term is used primarily for multimodal moves and is the same as CPT, except the seller must also purchase cargo insurance in the buyer’s name.

DDP (Delivered Duty Paid) This is the maximum obligation that can be assumed by a seller. The seller is responsible for all risks and charges up to the consignee’s door.

DAT (Delivered at Terminal) (new) Delivery is accomplished when goods are unloaded and placed at the disposal of the buyer at a named terminal.

DAP (Delivered at Place) (new) Delivery is accomplished when goods arrive and are ready for unloading at the destination.

(Note: These last two terms replace the 2000 Incoterms for Delivered at Frontier, Delivered Ex – Ship, Delivered Ex – Quay, and Delivered Duty Unpaid.)

INCOTERMS FOR OCEAN AND INLAND WATERWAY TRANSPORT (4 terms)

FOB (Free on Board) means that the seller is responsible for getting the goods to a port. The buyer bears the cost and responsibility from that point on.

FAS (Free Alongside Ship) requires the seller to deliver the product alongside a given vessel at a port.

CFR (Cost and Freight) deals with the cost of the merchandise as well as the freight costs. The seller is responsible for the product and the transportation costs to the destination port.

CIF (Cost, Insurance, and Freight) provides that the seller pays for insurance in addition to the product and transportation costs.

A clean understanding of these terms is important. They have been designed to cut down on the uncertainty arising from differing interpretations of terms of sale from one country to another.  The new terms can be found at several locations on the internet, and free, printable charts are readily available.

Written By: Clifford F. Lynch

A PLAN OR A FANTASY

On February 12, President Trump sent to Congress his long awaited plan for repairing the nation’s infrastructure. The plan was first mentioned during his campaign when he promised that $1.0 trillion would be spent on the repair and/or construction of bridges and roadways. Even before the plan was formally presented however, it became clear that the federal government would provide only $200 billion of the total. The bulk of the funds ($800 billion) would have to come from the states or private enterprise. The final proposal was pretty much as predicted, and was disappointing to almost everyone.

Even the $200 billion is problematic. The Highway Trust Fund has always been the source of most of the funding for highway and bridge repair and construction. Currently however, the federal government is spending about $15 billion more annually than the fund takes in. The fund is supported by the federal fuel tax of $.184 per gallon on gasoline and $.244 per gallon on diesel fuel. These taxes have not been increased since 1993. The reason for this is purely political. No member of Congress wants to be associated with such a visible tax, particularly this year, when a number of them are up for re=election. Most industry organizations such as the American Trucking Associations and the U.S. Chamber of Commerce, have advocated an increase, but Congressional leaders apparently would rather have a root canal than to try to push such legislation through Congress.

To compound the problem further, because of Congress’ failure to act, twenty-six states have raised their fuel taxes since 2013. If by some miracle, the federal tax was increased, drivers in those states would be penalized for their states’ proactivity. Right now, it appears that the $200 billion Federal share is going to increase the Federal deficit even further or be siphoned off from other programs, neither of which is a satisfactory solution.

That still leaves the bulk of the funding up to the states or private interests. It is reasonable to expect that this can only result in increased state taxes or the privatization of public services. Some states already have privatized rest areas along interstate highways. Both the White House and the Department of Transportation see tolling of interstate highways as one of the cornerstones of the plan. When the interstate highway system was authorized in 1956, Congress banned tolling on any of these roads.   Although some exceptions have been approved, most of the interstate system is toll free. It is difficult to visualize private investors getting excited about owning highways unless there is a reasonable return on their investment. The same is true for any state or federally funded public facility. We could find ourselves paying fees for using highways, bridges, airports, and rivers. The sparsely populated, rural areas could see no improvements since there would not be enough utilization of roads and bridges to justify private investment.

Finally, the states if left to their own devices, will invest in the projects they feel are important, not necessarily what is best for the country or the national highway system. We could end up with a state of the art highway in one state that quickly deteriorates at the state line. I am afraid that by the time this all sorts out, we would be much better off if Congress just increased the federal fuel taxes.

In a 2017 speech, President Trump said, “I will be asking Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States – financed through public and private capital – creating millions of new jobs. Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our beautiful land.” This is a great goal, but so far the execution appears to be a little weak.

Written By: Clifford F. Lynch

WHAT IS BLOCKCHAIN?

For the past year, there has been a considerable amount of discussion about blockchain and its applicability to the supply chain. New supply chain management concepts pop up all the time, but it has been a while since we have seen a subject so often discussed, yet so poorly understood. The most common questions seem to be, “What is it?” followed by “What does it do?” According to MIT associate professor Christian Catalini, “at a high level, it allows a network of computers to agree at regular intervals on the true state of a distributed ledger.” This so-called distributed ledger is one in which every transaction on a particular network is recorded and is available to the participants to view and verify.  According to Catalini, “such ledgers can contain different types of shared data, such as transaction records, attributes of transactions, credentials, or other pieces of information.” The technology is based on the same complicated mathematical functions that brought us Bitcoin, Ethereum, and other digital currencies- subjects that can be even more confusing than blockchain.

According to its proponents, blockchain can increase visibility in the supply chain (as well as other functions) by breaking each movement down into a block and documenting the transactions every time a shipment changes hands. Linking the blocks together creates a record of the details of each movement, and every party to the transaction has access to the information.  An independent third-party records and validates the information, and no party can amend anything without validation by the other members of the chain. Blockchain supporters claim that this visibility will save time, reduce costs and risk, and promote trust among the parties.  Some go so far as to say it is as significant as the invention of double entry bookkeeping. Skeptics suggest that it seems to be touted most often by vendors who stand to profit from its implementation.

The 2018 Third Party Logistics Study, released at last fall’s CSCMP conference devoted several interesting pages to the subject, and suggested that “the goal is to create one version of the truth, link information, and create transparency.” Their survey however, indicated that 67% of the LSP users and 62% of the providers did not know enough about it to draw any conclusions at the time of the survey. Across the industry as a whole, there seems to be a similar mood. While there has been a considerable amount of interest and discussion, there has been little use. Some companies are moving ahead, however. Maersk Line, Wal Mart, and IBM are working on systems currently, and others no doubt will follow suit as understanding of the concept grows.

It is not the first new supply chain development to require a quick education, nor will it be the last. While the technology is complex, this should not keep us from embracing the concept, determining how it can help us manage our supply chains more effectively, and implementing the concept where appropriate to do so.

For a good discussion of blockchain, see the 2018 Third Party Logistics Study and the September 1, 2017, issue of Fortune.

Written By: Clifford F. Lynch

2018 WILL CALL FOR CAREFUL TRANSPORTATION MANAGEMENT

For over a year, carriers have warned us of pending capacity issues and increases in rates occurring in 2018. We are a month into the New Year, and early indications are that those predictions are going to be on target, particularly in the LTL sector.  If the economy continues to improve as most expect it to, soon we will begin to see capacity shortages and higher rates. Although most shippers have already factored last fall’s general rate increases into this year’s budgets, most industry watchers believe we will see additional increases this year. In a recent Logistics Management article, John Schulz wrote LTL shippers……”should brace for some of the steepest increases in a decade because of rising costs and sharply higher demand.”

As everyone in the industry understands, the primary reason for decreasing capacity is the continuing shortage of drivers. This is not a new problem by any means, but one which has been with us for several decades. It is being exacerbated in the LTL sector however, by the significant increases in on-line ordering and the resulting smaller shipments. We are creating more shipments, but not more drivers. The other reasons for driver shortages are well-known. Factors such as pay, lifestyle, hours of service, and government regulation all contribute to a somewhat negative work environment.

Already, a number of carriers have increased pay, added sign-up bonuses and other incentives to attract and retain drivers. Since the total pool of experienced drivers is limited, we will see more turnover in the industry as drivers move for more lucrative positions. Currently, the turnover rate is in excess of 90%. Private fleets for example, pay as much as 30% more than the for-hire carriers, making them formidable employment competition. The end result of all this is that shippers will pay the cost of keeping drivers in the system and keeping them happy.

Another contributing factor will be increasing carrier equipment costs. The cost of a tractor has more than doubled in the last ten years because of the modifications involved in reducing carbon emissions. Today, the air coming out of the engines is cleaner than the air going in. The most recent major expense hitting the entire industry is the cost of the new electronic logging devices (ELDs) that became mandatory for most interstate carriers on December 18, 2017. Under the new law, most tractors will be required to have the new equipment. Although some of the major carriers installed them several years ago, many, particularly the smaller carriers and owner-operators, did not. Not only will ELDs require additional investment, they are predicted to reduce driver productivity as well. The elimination of paper logs will eliminate the ability to drive an extra hour or so with no consequences. Experts are suggesting this productivity loss may be as much as 4 – 7%, thereby requiring more drivers to move the same amount of freight.

Finally, just as other firms have learned to do, carriers are taking advantage of new technologies – in their case to price more efficiently. One recent example is another result of the electronic commerce trend. FedEx and UPS found themselves handling an increased number of light weight packages that occupied an inordinate amount of space. Last year they began the use of a new “volumetric divisor” which is used to calculate the dimensional (dim) weight of the packages they handle. Charges are based on the actual weight or dimensional weight, whichever is higher. LTL carriers are beginning to adopt similar pricing schemes. This is sure to increase the costs of firms moving this kind of traffic unless they take corrective action.

It will become increasingly important for shippers to search their supply chains for ways to mitigate increased rates. For example, changes in package design could eliminate the need for lightweight packing materials, reducing the size of shipping cartons. The outsourcing of distribution to a logistics service provider with a strong consolidation program can reduce transportation costs. Less tangible, but just as important, try to improve relationships with carriers and drivers. Good relationships can be very important when capacity is tight.

In summary, while it appears that some rate increases are inevitable, taking a hard look at your processes and techniques may yield some surprising positive results.

Written By: Clifford F. Lynch

A 2018 WIN FOR LTL CARRIERS?

There are several trucking legislation issues carrying forward into 2018, but there is one in particular I think will be resolved this year, provided Congress passes an infrastructure bill. Three years ago, several LTL and parcel carriers urged Congress to pass legislation that would have allowed the use of 33 foot twin trailers on the nation’s highways. Although the proposal had a fair amount of backing in Congress, the legislation did not make it to the President’s desk. The new law, had it been enacted, would have allowed the use of the longer trailers, in lieu of the 28 footers now in use, allowing about 18% more volume and requiring fewer trailers to move the same amount of freight.

Early last year, year, with a new administration and a new Congress in place, Fred Smith, Chairman of FedEx began to lead a charge to get this legislation passed. FedEx, joined by UPS, Amazon, YRC, U.S. Chamber of Commerce, National Association of Manufacturers, and others have formed a group called Americans for Modern Transportation (AMT). According to its press release, the group was established with the intent to improve infrastructure and transport policies in order to more efficiently address the needs of the industry.”  In explaining this central goal, the group went on to say: “To continue moving America forward, infrastructure investment cannot simply be improved roads and bridges. We need to lay the groundwork for a modern transportation system. Central to this goal is combining infrastructure enhancements with efficient trucking and policies, as well as incentives for better safety and fuel technology.” Not surprisingly, the group’s first major initiative was to seek approval of the 33-foot legislation.

Since truckload carriers use 53-foot trailers, the movement has been spearheaded by the LTL and parcel carriers who use the twins, but the Truckload Carriers Association has opposed the adoption of the new rules, citing competitive disadvantage, safety, issues with TOFC equipment designed for 53 and 28 foot containers, and other concerns. (Frankly, these and their other arguments seem weak.) Other groups have expressed safety concerns with the longer rigs on the highways. In fairness however, 33 foot twins already are allowed on portions of highways in 20 states, without disruptions to the marketplace of safety problems.

AMT commissioned a study to determine the feasibility and economics of operating the longer trailers, and the conclusions published in March, 2017, in an analysis entitled “Twin 33 Foot Truck Trailers: Making U.S. Freight Transport Safer and More Efficient”, were very positive. The consultants concluded that in 2014, widespread adoption of the 33 foot trailers would have resulted in 3.1 billion fewer vehicle miles traveled, 4500 fewer truck crashes, $2.6 billion saved in shipper costs, 53.2 million fewer hours saved due to less congestion, 255 million fewer gallons of fuel, and 2.9 million f ewer tons of CO2 emissions. The 19 page report explains these conclusions and also addresses specifically each of the concerns of the TCA.

If one takes this report at face value, and so far, there seems to be no reason not to, it would be difficult for legislators to ignore these positive impacts on infrastructure and environment. No doubt, there will be lengthy partisan debates; but at this point, I think the prospects of passage look good, as part of a broader infrastructure bill. While as a stand-alone bill, passage could be a problem, slipping it into a more important and acceptable infrastructure bill should make it easier for uncertain or pressured members of Congress to justify.

Written By: Clifford F. Lynch