Transportation trends: LM survey finds that shippers are sticking to their favorite transportation partners

For most U.S. shippers, 2007 was a year to take advantage of pricing opportunities wherever they could find them. Moving into 2008, our survey found that while some shippers are still price shopping, most are sticking with the sure bet—the reliable transportation partner.

By Patrick Burnson, Executive Editor -- Logistics Management, 2/1/2008

• Playing the matching game
• Sticking to what works
• Weighing all options
• The middleman chimes in

While betting on long shots might hold a thrill for some, our uncertain economy is making shippers take a measured—if not entirely cautious—approach to motor carrier contracting in 2008.

Over the past month, hundreds of shippers responded to a Logistics Management survey designed to help us understand how they’re approaching their truckload (TL) and less than truckload (LTL) relationships in the coming year—and many of these readers were good enough to share their candid thoughts with us for this feature. For the most part, these shippers echoed industry analyst forecasts: If the economy rebounds after a weak first quarter, it will be a soft recovery at best for the trucking market.

As a consequence, shippers will be adhering to new pricing models and developing new strategies drawn up to “constructively” take advantage of any opportunities they see coming their way. And carriers are, as we found, coming your way with a polished sales force ready to wheel and deal.

Overall, our survey found that each respondent’s motor freight challenge is as unique as the company and industry they serve. However, we did learn that while many will continue to price shop and hedge their bets, many more shippers are more likely put big money down on the favorites—the reliable transportation partners.

Playing the matching game

Kent Shelton, business unit manager for Nemaschof Chairs in Sioux Center, Iowa, says comparing trucking services by geographical segments these days has become a matching game. “We examine the pricing on specific routes before determining who to pick,” he says. “But we’ve learned that some carriers are not very reliable with specific types of loads. If we’re shipping one of our heavier, high-end chairs, for example, it’s got to be moved by one of the premium players,” he adds.

And because Nemaschof is one of the only U.S. furniture manufacturers for the health care industry, Shelton believes he can provide carriers with steady volume—giving Nemaschof leverage to spare. Shelton says that USF Holland did a good job for him with a shipment to Missouri recently, and he sees carriers spending more time on nurturing accounts like his. “The carriers all know that we shop around,” he says. “If they want our business, it has to be very service-oriented.”

It’s not only the specialty designed goods industries that are seeing a shift toward competitive bidding, however. For Kerneos Inc. a world leader in the manufacturing of calcium aluminate cement, there’s evidence of change that is, well, concrete. “The hungriest, in this regard, are the LTLs,” says Joyce Kupetz, supply chain manager for the Chesapeake, Va.-based shipper. “But we’re seeing a lot more reps from the major full truckload companies now, too.”

And they are ready to deal, she adds. In going after a “win/win” arrangement, she’s looking to promise backhaul loads to carriers serving other clients on the inbound side. So far, this has been a good strategy, although she admits that finding capacity to serve the Northeast is still a challenge.

“We are coming at them from a position of strength,” she says, “since our company has been performing very well at the same time the big trucking companies have been struggling. They know that we’ll even use rail if that’s a more attractive alternative. But in the end, it’s got to be the customer who determines how it’s shipped.”

According to Kupetz, Kerneos customers are concentrating on core competencies and are not particularly eager to build their own terminals—and they’re relying on her to provide them with the resources for international moves as well. “If a customer wants us to ship to Canada and Mexico, we can do that without too much difficulty ourselves,” she says. “And we’ll use a special broker for shipments to South America when necessary.”

Sticking to what works

A trend that emerged in the late 1990s was for truckload companies to say they could do it all, promising door-to-door service anywhere in the global marketplace. For Robert Rampersad, director of logistics strategy for Kellwood Company in New York City, full truckload carriers have over promised and under delivered in this arena over the past few years.

“The biggest players will tell you that their overseas subsidiaries will make it easier to do one-stop shopping, but they really only have a small footprint in other countries,” observes Rampersad.

Kellwood, a $1.6 billion leading marketer of apparel and consumer soft goods, specializes in branded products like Calvin Klein and Phat Pharm. The company markets to all channels of distribution with products and brands tailored to each specific channel and uses factories in North Asia for most of its manufacturing. “A few carriers might be great on the full truckload side, but when it comes to ocean carriage, they’re not really asset-based. So we might as well go to a broker for international service,” says Rampersad.

However, he stresses that middlemen are not always the answer for every overseas challenge these days. “With the consolidation of carriers, we’ve seen a proliferation of brokers who can make good on getting a decent rate, but they don’t have a thing to do with service. Many of them might have great relationships with truckload companies, but they won’t know who runs the ocean carriers—it comes down to a lack of overall control.”

While many shippers told us they’re faced with new global challenges, Jim Schwartz, procurement agent for Midwest Generation—one of the largest independent power producers in the United States—says the focus of his trucking needs remains in the continental U.S. “Our leadership evaluated the opportunity of shipping to foreign markets but has decided to keep business here,” he says. “There’s plenty of demand for our services, and our trucking partners are doing of a good job of providing transport.”

Not so with rail, however. “We’ll be moving more cargo on LTL,” he says, “and leveraging volume to get the best deals from a variety of providers. One thing is for sure, though; railroads will get less of our business. They have become too greedy and don’t provide the door-to-door service we have come to expect and rely on.”

And in the energy game, reliability is critical. Midwest Generation owns and operates six electric power-generating facilities in Illinois and also supervises operation of a plant in western Pennsylvania. “In this business, everything is time-critical,” says Schwartz. “If a power grid goes down, we’ve got to get parts shipped in a hurry. That’s why we continue to rely on all the major couriers for rush orders.”

Weighing all options

For Greg Dillman, distribution manager of Affinia-Wix Filtration in Gastonia, N.C., the coming year will find him weighing the benefits of shipping TL or LTL. “While about 75 percent of our shipments are made by full truckload, we have to be very creative with LTL,” Dillman says. “For us, this means more pooling of trailers for distribution so that we can discharge cargo as we carry it from the East to the West. Ideally, we will offload the larger chunk of the cargo at the first few stops, and this contributes to our efficiency.”

Dillman adds that since he’s been with the auto parts replacement company, more states are now used for pooling due to the channel patterns of its customers. “We’re fortunate that our clients and partners understand the value of this pooling arrangement,” he says. “It saves them money, but they have to be flexible, too.”

Pooling also permits Dillman to schedule more direct deliveries to stores and dealers as well. Given the time-sensitive nature of his cargo, an intermodal strategy is not that practical for his domestic moves. “However, intermodal makes sense for us on the international side,” adds Dillman. “We do a lot of business overseas in Poland and Brazil, and we leave it up to the broker to put all of that together.” Dillman says he’s been relying on Kuhne & Nagle for international transport strategies.

Bill Knake, vice president, sales, for Tracer Industries Inc. in Havana, Ill., says he relies almost entirely on independent trucking brokers for delivery of product these days.

“Many of these guys aren’t even asset-based,” he says. “They just go out and find me the best rates available on the Internet. And more importantly, they provide me with the personal service level that the big carriers don’t give us any more.”

Tracer, a manufacturer of axles and wheel spindles for agricultural equipment, does cross-border business as well but does not plan on developing a broader overseas strategy. Like other shippers interviewed for this feature, Knake agrees that “playing favorites” will be the rule in 2008, rather than the exception.

The middleman chimes in

Steve Guilfoyle, international manager for Choice Logistics in New York City, says being a 3PL with a high-tech client base gives him the best of both worlds. “We have high quality shippers who expect the most efficient service from carriers irrespective of price,” he says. “Of course, they are always looking for the lowest rates, but if one carrier disappoints them one time, we’re asked to help find another one.”

He notes that many shippers are also relying on their business partners overseas to help determine the best fit. “The international part of our business is moving further into the EU, including Turkey,” he adds. “We’re even seeing some growth in the Middle East. Our shippers are more familiar with the trucking and warehouse companies working in those regions, so naturally, they tell us who to call.” And in many cases, he adds, it’s with a huge world player like Schneider or J.B. Hunt.