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Answer the Question...
June 3, 2008

One of my weekly habits is to go into linkedIn.com and look at the questions posted in the Supply Chain Management area. (If you don’t know what LinkedIn.com is, go there at www.linkedIn.com.) There was a question from the sales manager of a little 3pl about the death of carriers due to high fuel prices and if the “community” knew of any shippers that were looking for capacity.

No one really answered his question, mostly there was ranting about how if the carriers were going out of business it was because they were bad managers, or how it is a play to get higher rates, or random single point issues about how the truckers are hurting.  What struck me was how ill informed and somewhat ignorant some of the posted answers really were. Don’t get me wrong, there were “glimmers” of some knowledge, and there were some very good spot on answers for one of the factors affecting the truckload market, but nobody painted the whole picture.

I found myself thinking about the innovative shippers and what they are doing to be ready for the problems to come. The really good ones are “changing” they way they went to market in the past. I think that these changes are good.

There are several things that shippers are doing to not only deal with the problem now, but in preparation for the tightening of capacity in the 3rd and 4th quarters that is going to happen. Many shippers are watching the smaller carriers close down with concern.   In the 1st quarter over 900 carriers closed their businesses. The very sharp rise in diesel prices put many small carriers into a cash flow squeeze that they could not survive.

The really smart and innovative shippers are using a combination of tools. They are “paying forward” to some strategic asset based carriers to assure that those carriers are there to cover the critical lanes when the demand for truck capacity returns. They are paying a “little bit more” than market now to those carriers and having the conversation with the carrier that the shipper is working as a partner, and the carrier needs to make sure that the capacity is there. These same shippers are also partnering with 3PL’s, either brokers or transportation management companies, for the coverage on the smaller, less regular lanes. Again, there is conversation about the shipper’s strategy.

Then there are short sighted shippers that see this as an opportunity to drive their rates down. Those shippers are going to be searching for capacity as the economy rebounds. And they will have a hard time finding it. Why? Because major carriers are shrinking capacity, and the “buffer” of the smaller carriers is going away.

But there are still some “thorny issues” that our old practices do not address. I am not the only person thinking about this; my conversations with the innovative shippers that I know illustrate that “gears are turning” on the following issues.

Fuel Surcharge Lag:

In March diesel climbed over 45%, and continued to move higher in April. But in March the weekly cost rises were in the 20 to 30 cent per gallon ranges. Even if a carrier collects a fuel surcharge (not always a sure bet if working with a broker or a “bad” shipper) the surcharge programs never accounted for these kinds of sharp rises in a single week. The surcharges are based on a survey of 350 truck stops and fuel depots conducted by telephone on Monday and posted at 5PM on Mondays by the DOE. That average cost is used to determine the contractual surcharge applied for the current week. 

In a rising market that DOE average is stale in one or two days. When the cost climbs over 30 cents in one week a driver filling on Friday could be losing as much as $60 for just that tank. In a week of sharply rising costs like what happened in March and in May, that single truck could see a loss to market of over $200.

Should there be an “Average” between the weeks, something that would “smooth out” the rises, (and the occasional falls”? One idea that I heard was just use the surcharge for this week for the loads that moved last week and not worry that the carrier is “getting more”. Not sure how many like this idea?

Empty Miles:

The truckers get to charge for fuel for the actual mileage between origin and destination. But the truck had to deadhead to the origin point. With the market decline of available freight, trucks are deadheading greater distances to pick up loads. A reported average from a few weeks ago for one carrier was average “empty miles per load” to be about 47 miles. Figure that the trucks get 6 MPG and that company burned 8 gallons of diesel to position for every load, about $38 for every load. 

One shipper told me that it looked like carriers were starting to really account for deadhead into the rates. The carriers always accounted for some deadhead, but this shipper said that he is feeling it. Another decided to help a carrier find a customer for an inbound carrier, not to lower the rate, but to keep the rate steady and assure capacity.

Mileage calculation:

“Practical Miles” is what the carriers would like to charge, which assumes that the truck is moving over major and interstate for most of the trip, using secondary roads for the least amount. “Shortest Distance” will use any truck certified road to calculate the distance. There can be a big difference between “Practical” and “Shortest” distance, for some lanes as much as 10%, but in most cases about 3% – 4%. Progressive shippers that look at transportation as a strategic relationship will use “Practical Miles” in the billing. Other shippers that look at transportation as a commodity will use “Shortest Distance”.

Payment Terms:

The freight moves today but it takes more than 30 days – maybe 45 days before the bill gets paid. The carrier paid for the fuel today, the driver payroll and expenses this week and the truck this month. If a carrier is not getting paid until a month from now, or worse, 45 days out, who’s freight are the carriers going to move when the capacity tightens? 

How are you innovating with your carriers?

Posted by Dave Schneider on June 3, 2008 | Comments (2)


June 27, 2008
In response to: Answer the Question...
ex trucker commented:

July is here. Federal Highway Use Taxes are due and July will be the month of MASSIVE trucking failures. The industry knows who is taking advantage of truckers during the tight economy they have had to suck it up but have been taking notes. There will be great joy to the survivors in trucking as they watch your cheap freight rot on your docks. YOU CHEAP BROKERS AND SHIPPERS YOU KNOW WHO YOU ARE.




October 15, 2008
In response to: Answer the Question...
In the mix commented:

It doesn't really matter who is the head of our country and sells our jewels or comes home with them in their hands, like Bush did with the Saudia Arabia king in OIL. Our government is owned by the bankers. Bigger people are in charge and it isn't our government. I hate to tell the general public and truckers/small businesses....YOU AIN'T INVITED!! A perfect example that the heads in government could do is look right here. Right at trucking, how a corporate socialist system with big bankers works. I am on a trucking forum and push for truckers and refuse to back down, especially with THE BANKERS....BIG BROKERAGES ARE NO MORE THAN BIG BANKERS. They are what the Federal Reserve is to government and they are in charge. They are controlled by the shippers and their market is this: How can I save my customer money, and no thought on what the truck needs. They are non-asset based companies, and they are possibly exceeding their own customers revenue. They are the TQL's, the CHR, and the Landstars. They inflate our markets by their non skills of truly watching MARKETS, watching markets is not how many trucks are in one area vs another area, it isn't in a backhaul. So their profits rise as they take more, based on how many trucks are available and how many are not available, creating INFLATION TO TRUCKERS and bam your out of business. The sad part is this it effects everyone, and it especially effects the smaller carriers. They have minimal regulation if any and according to the FMCSA they are "Arrangers" but in the next breathe they will tell carriers, "Don't use us if you can't afford us." Excuse me: Your job is a "arranger" of freight to bring shippers/carriers together, not negotiate your wage out of us. How much you big bankers can keep. Brokers need a cap, a transparent cap!! The worst business decision truckers ever did was allow them into THEIR BANKING! We do not need to be babysat in our own finances, and we the brokers out of the loop as the "Conduit" of guess what?? OUR FUNDS!!! This is the outcome of corporate socialism. The industry calls this "Thinning of the herd" and pretends that it is done for others survival. If a trucker can only justify getting a better rate by fellow truckers falling, thats a shame and it also on the other side is the greatest talk and scam in the world. Truckers/Companies when that truck key is put in that ignition, the payroll truck starts, if you are not making any money, you better throw away the key, as ya just threw away you business to a shipper and a big banking broker. I call it no negotiation on brokers part, and cheap shippers who are preserving their wealth and just want a cheap truck. Brokers get it best the revenue by ripping off the shippers/carriers by having the ability to play two sides to a coin under a iron curtain of SECRECY....Carriers do not say anything or STAND UP, because FEAR! Sound familiar? Congress changed votes on the bailout out of what? FEAR! Everything that is going on in government is parellel to trucking. A broker wrote on forum how she is not making it and can't get any freight. My response is below why: Corporate Socialism: Trucker girl I am sorry to hear this.....But trucking should truly be a example to show the world, how pure corporate socialism works. You are most likely feeling the effects of truckers using the big bankers, as times are tough for everyone and they at least know they will be paid timely to preserve their own livlihood and not be pickled. In this mess we will see lots of smaller brokerages fail right along with smaller independents (we are seeing this) as it shifts wealth to one side of this industry. It is truly not hard to grasp we only need to look at our biggest economic infastructure.....TRUCKING! The shifting of wealth in banking is being shifted to where? To the big bankers the big brokerages, which creates them to monopolize a market, control the movement of freight, POWER BEYOND POWER, manipulation of wealth to their own back pockets, something that deregulation was suppose to not create. This is why we see 50% rise to the big brokerage bankers TQL and growth at rapid speeds verses little growth to the small fish in the sea. We saw this before fuel increased and during the crisis. The proof is in numbers and profits where the profit goes and to who? Even in a fuel crisis, profits rose to big brokerage bankers and fallen profits to all the little guys, and small trucking companies. Large companies as well. I wouldn't blame carriers, or smaller brokers....but blame the emperors shippers/receivers who also become comfortable with the big bankers and then capitalization shifts to one side in this industry. I know you can call cusotmers, and they will say...."Well we've been using so and so big banking brokerage and we are happy, click on the phone." ITS A SCREWED UP SYSTEM. Carriers/Truckers giving away their rights to the big bankers, if they held onto being paid NOW by the shippers, the wealth would be shared with everyone. It would force shippers to look at everyone, and allow many smaller carriers to negotiate out here instead of no negotiation. Corporate Socialism will create many smaller truckers to fall, as well as smaller brokerages, as it creates Power shifted to the wealthy, and little power to other brokers trying to acquire accounts, and truckers trying to negotiate a rate. It keeps the emperors in charge who are the shippers/receivers....It also shifts the power to your own competition...BIG BROKERAGES, who perhaps are more competive to your own service and payroll than the truckers actually are. Your own survival. We are seeing this, and we see it in numbers. We feel it, and most truckers appreciate the small guys over the big guys. The big guys are non-asset based and putting all the profits in their back pocket. What they can keep, and carriers banking on their honesty..That is a joke my friends. Emotions, assuming everyone is honest in a good faith for nothing system, come to my tea party, lets have potato salad and hot dogs, that doesn't belong in business. Its cushiness to get right in your back pocket. Smoochie woo woo, while they also let you kiss their bum at the the same time. Lets get real, this is business. It has nothing to do with taking some good faith system and bringing honesty and ethics into it. Proof works great, transparency works even better. The truckers should have never given up their rights in contract to brokers or to companies or to shippers, and one of those rights should have been paid directly by the shippers/receivers upon the load being delivered, and disperse the wealth, as trucking is a billion dollar industry. They should have demanded transparency, demanded accountability, and demanded that a good faith system be abolished. Good faith of what?? Going broke? Going broke over others who have no assets competing with your customers and p





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