Logistics and Supply Chain Managers mainly reside in very large organizations with multi-million dollar budgets.  Small and mid-sized companies have mostly determined that having anyone with extensive knowledge of logistics and, especially transportation, is a luxury they often cannot afford.  Thus companies either just get by, hire a third party logistics company to assist them or do nothing.

 The reason traffic and transportation managers were so abundant 20 years ago is that shipping costs can be a substantial portion of the supply chain equation.  A traffic manager could easily be justified, especially with budgets in excess of $1 million.  The complexity of transportation has not decreased, in fact, it has probably increased.  So what happened?  Like so many positions, companies that ship or receive goods simply could not afford the extra resource.

 Unfortunately, CEOs, CFOs and COOs of organizations don’t understand the inner-workings of shipping and whomever they have managing the function is expected to “figure it out.”  When I talk to C level executives, they trust their people to do the best job, but in all too many cases, don’t provide their people the tools and authority to manage the function.  For example, I know transportation managers who have a $1 million budget, but are not authorized to purchase a new pen.  They can make costly routing decisions, but cannot make other critical decisions about overall transportation strategy.

 The C level has to understand that shipping costs are going to continuously increase and that if they really want to prevent that from happening, or minimize the increases, they have to empower the people doing the work, and more importantly provide them tools.  These tools take the form of software programs to help optimize routings, collect detailed data, integrate with other systems, and insource what might be outsourced.

 I often joke with CFOs that if they wanted they could create financial reports and controls using a simple spreadsheet.  They all laugh at that suggestion as it would be totally counter-productive and waste a lot of time.  Giving the people who ship or buy product , transportation management software is the equivalent of using accounting software in place of spreadsheets.  If the C level really wants to know what is happening in the shipping trenches, simply talk to a transportation management software provider and compare the functions that can be automated and optimized versus functions being managed manually and sub-optimally.

For those who don’t want to read the article, here are the highlights, or as I prefer to say, the lowlights.

A net loss of $3.3 billion for the Quarter

• Follows a net loss of $5.1 billion for fiscal 2011
• The loss for 2011 would have been $10.6 billion but legislation was passed to postpone payment of $5.5 billion to pre-fund retiree health benefits
• Also postponed is a consolidation of the postal network that would save $2-3 billion
• Total mail volume is down 6%
• Operating revenue down 1.1%
• First Class mail revenue was down 4.1 percent year-over-year
• First Class mail volume is down 15-25% since peaking in 2006
• Mail, excluding First Class was down 2.9%
• $8.5 billion loss in 2010 and $3.8 billion in 2009

One of the more interesting tidbits is that the USPS has a plan for rationalizing its network and closing down 252 of 487 mail processing center, but agreed in December agreed to delay the closing of any Post Office or mail processing facility until May 15, 2012.  That decision was made in response to a request made by multiple U.S. Senators.  An industry consultant predicts that due to upcoming elections, that May 15^th day will be pushed back post-election.

Are you kidding me?  Is this really happening?  Now, I don’t want to see anyone lose their job whether that be in private industry or the government, but common sense tells me that changes are needed and not after the election. Now!  We all know that if these circumstances were present in private industry, changes would happen so fast it would make our heads spin.

While many think the government can’t run anything correctly, the fact is the leadership of the USPS has plans but politics are getting in the way of making hard, but necessary changes.  One consultant suggests that the USPS should simply raise its rates to cover its costs.  That would mean rates would have to go up 50% or more, and with those prices there would be further erosion of business.

I have two very novel ideas.  The first would pass legislation (if that is really necessary) that dictates the USPS operate as a real for-profit business.  The USPS has an infrastructure that could be leveraged several ways to increase revenue  and ultimately customer satisfaction.  The other idea would be to privatize it.  Have a real company run it. I can guarantee you that a for-profit company would run the USPS in such a way that it would turn a profit and that the rates for service would be competitive.

The only other option is to continue running it as subsidized service so all Americans can enjoy USPS service at great rates.  It can simply stand in line behind Medicare, Medicaid and Social Security to have the government bail it out.

 Furthermore, Old Dominion’s yield, or revenue per hundred pounds increased by double digits and their overall operating ratio was an impressive 86.9.

 It is clear that Old Dominion continues to out-perform its national carrier peers.  Many LTL carriers are experiencing improvements but not to the magnitude of Old Dominion.  In fact, Old Dominion is beginning to leverage their success by adding drayage, international and logistics services. 

 I recently toured the Old Dominion facility here in Kansas City.  It is an impressive facility and they go to extra lengths to prevent claims and run a clean operation.  Old Dominion is also a carrier that doesn’t use much if any rail to help them balance their network.  Whatever, they are doing, they are doing it right.

 Anyone dealing in the shipping world has experienced the sometimes unkind world of hidden fees in carrier rules tariffs and surprise accessorial fees.  Especially, dominant in the LTL industry, these fees can upset anyone’s budget apple cart.  As the ridiculous carrier base rates continue to escalate along with nonsensical discounting, carriers will need to have ways to cover costs and make a profit.  Many rely on these extra fees to do just that.

 The more astute shipper uses a Transportation Management System (TMS) to store carrier contracts complete with up-to-date rules and accessorial fees so they know to the penny, what the exact costs of shipping will be.  I suppose it’s about time that someone brought another type of TMS to the market, a Travel Management System so travelers will know exactly what each component of traveling will cost.

 If not, we might be in for some government intervention in the form of more regulation.

 Saia’s President attributed the yield improvement to more disciplined pricing as evidenced by a 1.2% decrease in shipping activity in the 4^th Quarter.  Rick O’Dell also stated that he believes pricing will continue to increase during 2012.

 LTL carriers have seen double digit percentage increases in yield during 2011 coming off very slow and depressing years of 2009 and 2010.  Tighter capacities, increased regulations and higher equipment costs are driving operating costs up and LTL carriers have not been shy about seeking increases from all of their customers.

 Many analysts expect pricing to remain firm with very modest increases for 2012.  LTL pricing will follow suit with the overall economy.  If the economy picks up slightly, expect rates to do the same.  If not, pricing should only marginally increase to cover slightly higher 2012 operating expenses.

 Jeff Rogers, YRC Freight’s President explained that they are trying to be a new company and transporting freight is what they do and it should be in the name.  YRC is a combination of the former Yellow Freight System and Roadway Express.  Interesting that one had freight in the name and the other did not.

 Initially YRC Freight will rebrand 1,000 city trucks this year and begin issuing uniforms with the new logo.  Rebranding is not an inexpensive adventure.  Not only do trucks have to be rebranded, but stationery, business cards, web-site, marketing literature, and buildings.

 Will this help YRC Freight gain new business?  Will this change company morale?  Will this create a new image in the industry?  It is clearly too early to tell, but if profitability doesn’t return soon, it won’t matter.  For years, YRC Worldwide has operated dark blue, swamp holly orange and orange/blue combination vehicles in their fleet.  It has been interesting seeing a Roadway tractor pulling a set of Yellow trailers, or vice versa.

 I hope it all works out and I favor the change so long as it doesn’t continue the drain on cash.  I want to see them survive.  They have been through so much, they can’t stop now!

 Over the past years, YRC had strived to enter into the regional markets to become a carrier offering both regional next day services as well as traditional longer lengths of haul.  The original goal was to capture as much of a customer’s freight as possible within one company.  Now, they are shifting that strategy and reverting to a network that will solely focus and support shipments moving greater than 500 miles.

 In conjunction with this change, YRC is proposing to transition from 28 hubs to 23 and convert the others as stand-alone end-of-line terminals.  Since YRC is a unionized carrier and governed by contracts signed with the Teamsters, a formal change of operations must be approved by the Teamsters. 

 In their filing with the Teamsters, approximately 700 hourly employees would be affected, resulting in the opportunity for such employees to relocate and follow work.  With such a change, YRC will gain some employee efficiency and eliminate multiple hourly  and management personnel. 

 It is anticipated that this change of operations will cost in excess of $2 million.  Naturally, YRC believes that the efficiencies gains will more than cover the one-time cost.

 This is a definite sign by YRC that it is returning to its roots… that of a long haul carrier.  While many LTL carriers continue to escalate the number of services offered (warehousing, international, expedited, household relocations), YRC is serving notice that they intend to focus on what it does best.  They are correct when they say they have regional carriers within the parent that can adequately service the next day market.  However, Reddaway, Holland and New Penn are constrained by their physical boundaries. Going forward next day movements outside those boundaries will not be offered.

 Given YRC’s cash position and recent profitability (or lack thereof), this strategy shift makes sense.  As they continue to fight for survival focusing on their core competencies may just be a good move. I guess only time will tell.

Truckload – If you use truckload carriers to move goods, you will be facing additional price hikes to tack onto the average 8% increase most shippers saw in 2011.  Trucking companies have been hesitant to add capacity after the 2008 recession and by controlling their fleets they can generate higher yields.  Of course, many can’t add enough qualified drivers anyway, so controlling capacity may be more about drivers than any other factor.  Tighter government regulations have limited qualified drivers and as the economy picks up, jobs where one can stay at home every night are more favorable than the gypsy lifestyle of a trucker.  Consequently, don’t be surprised if rates on average increase 5-8% for 2012.  The new hours of service won’t impact the industry much this year, but get ready for that in 2013.

Rail and Intermodal – If you are a rail shipper, I don’t have to tell you about increases you will be taking.  Just take the average you normally receive and expect the same.  If you are an intermodal shipper, expect those rates to escalate as demand for intermodal services has jumped double digits over the past year.  Rails continue to provide better, more reliable service and with the jump in demand, makes for a good case of higher rates.  However, given the dynamics from the truckload sector above, this segment of the market will only continue to grow, especially for longer hauls.

Small Package – No new entrants here so expect the same relative increases (5.9%-6.9%) per year as volume continues to escalate with the general growth of e-commerce.   I believe regional small package companies will continue to grow, but perhaps not seek the same level price increases especially with accessorial charges.

LTL – During the past year, LTL carriers have been successful in translating tighter market capacity into higher yields.  Most were successful in bumping their average revenue per hundred pounds by double digit percentage points, but needed to after hitting the bottom during the 2008 recession.  The big “IF” and it is a big one, is if YRC can stay in business.  They supposedly have enough cash to get them deep into the year.  Should the economy not continue to grow, YRC could face undue pressure and they do not have the staying power of the other national brands.  Absorbing YRC’s volume into the other carriers won’t be a significant challenge operationally for the other carriers, but will come at a price.  Expect 4-6% general rate increases (like always) and double that if YRC doesn’t survive.

Air – My sense is that air freight capacity is ample and that rates should remain mostly flat.  However, if inventory levels fall or remain flat, there is always the chance for expedited service needs and thus a tightening of capacity.  That leads to higher rates, but I would expect normal increases to be experienced.

Ocean – This might be the one bright spot.  There is ample steamship capacity in the marketplace and steamships are ordering record numbers of megaships, predicting that container traffic will double by 2020.  For those doing business in 2012, the capacity that is available yields bargain rates and there isn’t anything on the horizon that makes me think otherwise.

These forecasts are one person’s opinion based on reading reports, engaging carriers, shippers and others in the marketplace.  One thing is for certain, change is constant in the shipping world.

Airlines are catching up fast.  At least one particular airline (not to be named) has taken pricing to a new level.  I booked a flight for my Mom to see her brother in Phoenix in February.  I had heard about this discount airline and their ridiculously cheap flights, but also was warned that they don’t fly every route, every day.  No worries.  This is for my retired mother andI knew she could be flexible with her schedule.  So I looked up the fare on the airline’s web-site and flying  round trip, the fare was $109.75.  Yes round trip.  I couldn’t believe my eyes and couldn’t wait to book this outstanding deal.

Once I hit the “next” button, I learned that the taxes and fees were $49.63.  Wow, that seemed high.  Upon further review I learned that the $49.63 was comprised of many things one of which was $8.23 for FED Excise Tax.  Okay, I’ve heard of that before so I’m okay with it.  Next was a $7.40 segment fee.  It’s a direct flight, so I guess I don’t understand what a segment exactly is.  Oh well.  A $9.00 PFC charge was included.  Not sure what that means, but it sounds like an official acronym so I better go along.  I got hit with a$5.00 911 security fee (damn you Osama!).  And then, the best one was the $20.00 convenience fee.  Since I was booking on-line, they nabbed me for this one.  I suppose it is more convenient for them if I call them and tie them up for 15-20 minutes and perhaps I could avoid this fee.  Probably not, as they might have a person-to-person live chat fee.

Okay, so I think  I’m doing all right.  Let’s get this booked.  Next the airline charged me $5.00  for an early bird boarding fee.  I decided Mom could get on board later, she won’t mind.  Un-check.  Gee, I love you Mom, but as Southwest says, any seat will do.  Plus, Mom is very friendly and she can have conversations going with the people on each side of her middle seat, all at the same time.  Un-check.

Okay, Mom’s getting up there so I better let her check a bag.    Where was that Southwest Airlines referee when I clicked okay?  Now the fare is over $200 and that’s after I declined some options.  What happened to the $109.75?  It doubled.  Just before I clicked the “I want to purchase” button I noticed that a $23.00 Trip Flex fee had been added.  A what?  I researched that and it stated that this ticket could be changed anytime without having to pay one of those expensive change fees.  Well, Mom might have to change plans.  Interesting that for every four people who agree to this, they exceed the revenue of a change fee.  Nice insurance program for the airline.

So, all in, a round trip to Phoenix that started out at $109.75 came in at $232.36.  Even though that’s a good deal, it just doesn’t feel like it.  I feel like I got nickel and dimed.  It reminds me of that 80% LTL discount.  While 80% off anything sounds good, it depends on what that discount is applied.  And then, are there other fees.  At the end of the day, I simply want to know what something is going to cost without going through the entire buying exercise to find out.  I know that a good Transportation Management System (TMS) will quickly provide the total cost of shipping something so I can quickly make decisions and book shipments.  I guess I need a TMS that works for airlines so I know early on what the true total cost is without dragging me through an arduous process.

Anyway, I believe that this move by YRC makes sense from a practicality standpoint.  There isn’t any need to maintain two sets of rates when a single company has emerged from two.  However, rest assured that the new YRC base rates, if they adopted only one is the higher of the two.  If they created a new tariff altogether, it likely will be higher for most shippers.  The statement from YRC’s web-site mentioned that no discounts or minimums change.  They don’t need to change if the base rate is higher.

At least YRC informed the public of this move.  A year ago, when FedEx Freight consolidated FedEx National into a single company and network, FedEx quietly retired the FedEx National base rates and quietly transitioned everyone to the FedEx Freight base rates which resulted in a hidden increase of approximately 9.5%

No matter what, these tariffs and base rates are complex and tricky.  Shippers need assistance to figure out their net impact.  With ridiculous discounts, ever-growing accessorial and surcharges, the costs of shipping keep increasing and the routing decisions all that more important.