Q&A: UPS' Kuehn offers take on the need for a national transportation policy

Jeff Berman, Senior Editor -- Logistics Management, 11/14/2007

ATLANTA—The myriad issues affecting both shippers and carriers today could be viewed as a “perfect storm” of sorts. These issues run the gamut from the sharp increase in oil and diesel prices in recent weeks to the ongoing economic downturn caused by the housing downturn, the credit crunch, and a lack of consumer spending, among other factors, to the need for a serious federal commitment to transportation infrastructure to make sure U.S. highways, railroads and waterways can keep up with the projected increase in freight transportation demand expected in the coming years. Many of these projections—if they hold true—signify the dire need for a national transportation policy that gets attention from Washington lawmakers.

One person that has a fresh and interesting take on these topics is Kurt Kuehn, UPS senior vice president of worldwide sales and marketing. As the keynote speaker at the Transcomp conference hosted by the National Industrial Transportation League, the Intermodal Association of North America, and the Transportation Intermediaries Association in Atlanta this week, Kuehn expressed his views on “getting the dialogue” going between freight transportation stakeholders and government to get transportation on the political map to address these looming challenges. Logistics Management senior editor Jeff Berman sat down with Kuehn after his speech to discuss this and other industry-related topics. A transcript of that conversation is below.

LM: During your keynote speech, you mentioned the real need for a national transportation policy. A year ago at this conference, NITL President John Ficker proclaimed “the time has come” to get the wheels turning on this concept. This concept continues to gain momentum, but has not received enough attention. What needs to happen to change that?
KK: We think there is an increase in chorus. The government is starting to address transportation issues more and more, and each mode of transportation is dealing with it in its own fashion. But we are just trying to bring it to the next level, where it is seen as a really broad, multi-modal, cross-industry challenge…by finding the right balance of government intervention, private-public alignment, and funding that is dedicated for infrastructure expansion—not just general budgeting.  

LM: The need for infrastructure investment is evident, considering the national highway system we use everyday was largely constructed about half a century ago.
KK: We have coasted for a number of decades after tremendous investments in the 1950s and 1960s. Today we have a multi-point agenda to get the dialogue going. I don’t think we are absolutely married to any of these concepts. The solution will differ in different markets and different modes, and we are just teeing up what we have seen in different best practices. Regardless of what happens, someone is going to have to pay for these infrastructure expansion improvements. This may occur through a gas tax or tolling. If we have the comfort of knowing that those types of fees are going to go for infrastructure expansion, then we are happy to pay our share. The concern is that it is just another form of indirect tax and the money is not used to invest in what we need. If that were to be the case, we would be very vocal with our concerns. The discipline you have to have is the assurance that this is going to go towards eliminating the hidden tax, which is what we are all paying today sitting in our vehicles.
 
LM: With what is going on right now in our economy, it seems like there is a bit of economic malaise that is clearly affecting freight transportation. What is your take on the impact of these current economic conditions in regards to the next six-to-eight months?
KK: At UPS, we are remaining cautious on the economy. We do serve a wide cross-sector of business and consumer customers, so we are concerned about the consumer outlook at this time of year [heading into the holiday season]. We are not worried about things collapsing, but we do think this peak season will be one of the most sluggish in recent memory.

LM: In recent weeks, oil prices have been approaching more than $95 per barrel and that spike is starting to catch up at the pumps, too. How does a company like UPS adjust to that situation from an operational perspective?
KK: Operationally, we have always looked fairly aggressively at fuel consumption and trying to optimize our networks. But clearly with fuel increasing over the last several years by a factor of two, it has forced us to re-double our efforts. Internally, we have got quite an aggressive campaign. This is done by giving our drivers feedback on their fuel effectiveness and making them part of the solution by tracking the fuel economy per vehicle and training them on how to minimize the need to brake and accelerate. We also have telematics that we are beginning to install in our equipment that actually can allow us to sit down with a driver to help review certain [driving and fuel consumption] situations. We use this for our pilots, too, by looking at the most fuel-efficient approaches for different airports. And we have found in some cases that a long, slow approach where a plane can ‘coast’ in [and reduces fuel] works very well. Effective usage of railroads is another we thing we do as well.

LM: A Wall Street Journal report recently noted that UPS is moving some freight onto the railroads. Can you explain the business reasons—or thought process—that goes into that decision?
KK: We are doing it on the LTL (less-than-truckload) side, and it is a fairly new initiative. We are very comfortable with the rails. We have moved a lot of our small parcels on the rails and offered guaranteed service doing that. And we have an infrastructure and technology that allows us to be very proactive in managing rail service. In some cases, we pull loads off the rails. We know we can work with the rails and provide effective service, so that has allowed us to ask ourselves where can we make good use of the rails for these LTL shipments? I think the fact that we have become such a [large] rail user and managed it actively is an important part of it, and we are comfortable doing that in the freight arena. It is a cost-savings if done right, and it has tremendous environmental benefit.

LM: How are things going with UPS Freight since the company initially acquired Overnite in 2005? What are the biggest challenges for UPS Freight during a time when market conditions are very challenging?
KK: We have been real fortunate so far. Our shipments are up double digits right now, which is against market trends at the moment. Overnite was a great, storied company but hadn’t invested deeply into technology. So we have come in and taken a lot of the technology we have developed over the last couple decades and are integrating that into the freight environment. We think that is creating a real different customer experience and has allowed us to show strong growth in a declining market…and we see ourselves bringing the LTL industry into the 21st century a little bit for inbound and outbound shipments with the ability to eliminate paper and move towards a paperless dock. This is all part of an evolution of trying to create a platform of technology and business processes that can span across all modes.

LM: In the third quarter, UPS’ Supply Chain Solutions (SCS) was profitable. What drove the momentum for this performance?
KK: For about four or five years—from 2001 to 2005—we were on an unprecedented period of adding capabilities to the company. We did almost 30 acquisitions in that time period to expand our portfolio, buying freight forwarders, customs companies, warehousing management companies, and we created quite an assortment of capabilities. And then in last couple years we have had to do the hard work of knitting those all together. This takes money, time, and energy, and it is always harder than it looks. We did struggle for a few years while we were doing that. UPS’ goal is to not just have these independent business capabilities but to link them all. Over the last year and half or so, we have made some substantial progress in the integration and we are beginning now to harvest the fruits of that, where we have a common platform linking ocean movements with air movements and rail movements and visibility movements so customers can see it all. We are starting to see the benefits.

LM: How are things going in the domestic ground parcel market? Is the consumer slowdown taking its toll on business at all?
KK: We have been holding market share pretty well, but the market is slow. We are doing the best we can to maintain good momentum in a sluggish environment, but we have seen modest slowing on the B2B side and a more significant slowing on the B2C side. But the B2C environment has been slowing down in the last year. Cycles come and go. We are continuing to reinvest in that capability

LM: What are you hearing from your customers, in terms of their biggest day-to-day challenges? What are they up against?
KK: The matter of optimizing their global supply chain continues to be a big issue for pretty large companies. It is such a moving target with more and more sourcing opportunities and trying to get your supply chain to keep up with it…along with getting the benefits of lower costs and making sure your supply chain stays flexible and responsive. Still, a big issue [for shippers] is how many ‘handles’ does freight really have to have? As you spread supply chains across the globe, do you really need to have a big box that puts 100 percent of the goods into that and then pulls it back out again? There is a lot of continuous re-thinking. Some of it has changed radically in the last five years, and some of the larger companies are really taking a look at that. The other thing we are seeing—that is an emerging trend—is that supply chain is taking a bigger seat at the table in corporate strategy sessions, because supply chain impacts the customer experience and the value proposition. It is fascinating for me when I see a head of marketing or sales come into these discussions, thinking how supply chain flexibility really drives the top line, when in the past supply chain has always been seen as a cost center. That is refreshing.

LM: When discussing supply chain and logistics as a career path, what needs to be done to infuse more youth in the profession?
KK: Some of the business schools are starting to get the message. I think we as existing professionals need to encourage [younger people to enter the field] on a local basis and connect a little better with some universities and trade schools so people that this is a very complex, high value-added activity. That is happening, but sometimes academia isn’t the fastest to adapt, so we need to be a catalyst and be demanding from our colleges that they embrace this [need] and create more momentum.  The demand will come, because I see more companies elevating senior supply chain managers to C-suite jobs, which was not the case five or 10 years ago.

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