Transportation Pricing Basics

Here are some basic principles to keep in mind when considering your pricing strategies:

Prices must at least cover costs. If you don't at least cover costs, and this includes an amount for your time, you will incur a loss.

The best way to lower price is to lower costs. As price equals costs plus profit margin, it's obviously better to reduce the cost element than the profit element if, for any reason, you find that you must reduce your prices. Sometimes you have to reduce both.

Prices must reflect the environment in which they operate. Any price, whether yours or your competitors', necessarily reflects the dynamics of cost, demand, market changes, competition and product utility.

Prices must be within the range of what customers are prepared to pay. It's all very well having the best transportation service in the world but, if your price is more than customers are prepared to pay for it, so what? On the other hand, there is absolutely no reason to charge less than customers are prepared to pay.

The price you set should represent a fair return for your time, talent, risk and investment. Don't be shy about demanding a reward for what you offer. Your expertise and talent has objective worth.

Price = Cost + Profit Margin
If the basic price you will strike is simply your costs plus a profit margin, it follows that before you can set your prices you must know exactly what your costs are.

Operating Costs fall into three main areas:
Direct Costs- Direct costs are those things directly related to the creation of your product/service, such as trucks, raw materials, parts and supplies.
Overhead- Overheads are business costs not directly (or entirely) related to the movement of freight and include things such as taxes, rent, office supplies and equipment, business related travel, insurance, permits, repair of equipment, utilities and professional advice (accountant, lawyer).
Labor- Labor costs include all wages paid to employees. This also includes fringe benefits.

A company can break down the operating cost into its component costs. The component costs (drivers) of the operating cost can be identified and measured as a percent of total sales, in order to determine the percentage change in each cost category from year to year. In this way, a company can see which costs are increasing the fastest, whether year-to-year cost increases are due to fixed or variable costs, and whether the costs are within their control.

Here is an example of some of the operating costs that you must consider:

1. Driver/owner operator, P&D costs
2. Insurance cost
3. Fuel cost
4. Fleet maintenance cost
5. Equipment capital cost
6. Sales & Marketing cost
6. General operating cost

Some cost increases are at least partially addressed through surcharges and accessorial fees by most carriers. For instance, one cost that is outside of a company’s control, fuel price fluctuations, has been addressed through fuel surcharges. However, other costs beyond a company’s control, such as the recent fuel efficiency deterioration (caused by new environmental emissions regulations) are costs that cannot be addressed by surcharges or accessorial fees. Yet other costs are at least partially under a company’s control, such as driver costs, sales and marketing, insurance, fleet maintenance and equipment capital cost. However, these costs still tend to increase every year (especially labor cost).

Prices should be set at levels that will shift products and services and not only to beat competitors. At the end of the day, you set your prices as high as you can while still shifting your products and services. Don't think that keeping your price as low as your competitors is enough. It isn't. As a matter of fact, you may have competitive advantages that mean you can price higher than your competitors.

Convergent Marketing and the Role of the Salesperson

Competition has increased so much in the transportation/logistics industry that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of services.

Convergent Marketing is used when all of the services offered by your company are branded with the parent company name. In this situation, your company strategy should be to have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs.

Transportation companies that sell multiple services should determine the most powerful method(s) for showing prospects both the cost savings and the intangible benefits that they offer. Concrete examples of past successes should be used, including the details of how cost savings were achieved, concentrating on examples where the company acted as a lead logistics provider, or at least provided multiple services.

The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. These decisions are often clouded by customer threats and competitive activity. The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, making promises that can’t be kept, poorly managing the accounts or neglecting its customer liason role, the profit machine falls apart.

The more “roots” you can sink into a customer’s business, the more likely you are to retain their business. Providers are adding more and more services to their portfolio, as customers demand more integrated solutions. Sales and service costs drop over time, because the customer and vendor learn how to work with one another. Customer satisfaction leads to customer retention, which provides the opportunity for account dominance, or primacy. The long-term primary supplier typically gets higher realized prices. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.

Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer. Teaching salespeople standard methods of prospecting, cross-selling, follow-up and making sure competitive pricing proposals are presented to prospective customers (on-time and administratively correct), are examples of the sort of sales enablement that work best.

Everyone is a Salesperson

A lot of people at a transportation/logistics company affect the customer experience and the perception that a customer has of the firm. The overall customer experience is often not managed well. The customer is then required to apply extra effort to navigate the organization to get things done, or get issues resolved. The more choices a transportation/logistics consumer has, the more pressure companies should feel to offer quality customer service.

Although it is good for customers to have a single point of contact (for simplicity), every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems.

The brain changes as a function of where an individual puts his or her attention. It is the power of focus, sometimes referred to as attention density. Attention continually reshapes the patterns of the brain. People who practice a specialty every day literally think differently, through different sets of connections, than people who don’t practice the specialty.

Sales professionals have profound differences in perception from people in other functions, such as finance, operations, solutions, legal, marketing and human resources that cause them to see the world in a different way. One difference is the tendency for salespeople to see themselves as customer advocates. This is a tendency that should be shared across all of the functions of every company. Salespeople and managers should help to teach others at their company to become customer advocates. Everyone should focus on meeting the needs of the customer.

In addition, we should employ the same sales techniques used to gain insight into customers to gain insight into our fellow employees. Every one of us is a salesperson and everyone else is a consumer of our ideas and personality. Find out about other people at your company and be genuinely interested in them and their motivations, if you want them to take your ideas seriously. There is no substitute for being genuinely interested in what others think and feel. We should all practice listening to the ideas and opinions of others.

I don’t believe that a salesperson who is truly concerned about their customer’s needs has to be at odds with the people at their work who are trying to develop, price and produce the company’s product. Rather, salespeople should help others to put themselves in the place of the customer, by offering their insights in a way that does not convey a pride of ownership of the ideas. After all, they got the ideas from the customer. All everyone has to do is be willing to actively listen and be willing to work together to solve problems. The ultimate responsibility for securing customers may lie with the salespeople, but the gain (or loss) to your company that results from your level of success in retaining customers will be felt by all.

Pursue Outside Interests to Promote Innovation

Pursue Outside Interests to Promote Innovation

Thag fell down while trying (for the tenth time) to balance himself on a small log. This fun, new pastime gave him a great idea! He applied the concept of falling off a rolling log to solving the problem of how to move a boulder blocking the mouth of his cave. The invention of the first wheel was almost certainly such an application of an existing concept to a new or unrelated problem. Because Thag had the ability to view his boulder problem in a new way, he could creatively solve the problem. Thag applied concepts learned in one area to another area. For this reason, cultivating interests unrelated to your job can make you a better problem-solver at work. You learn to see things from different points of view.

Innovation is one of the primary ways that companies adapt to changing circumstances. It is necessary to be flexible in order to adapt to complex, changing situations. Methods and techniques can get out of date in a short period of time. Over time, firms that survive are better at adapting to change. Extinct firms could not adapt.

Innovators rarely come up with new ideas. Instead, they convert old ideas into new ones, adapting them from one context to another. They go through a process of extending and changing the existing idea, until a new concept emerges. Cultivating various interests can lead to the application of concepts used in solving one type of problem to other, seemingly different problems. For instance, solutions such as M.B.O. (Management by Objective) were popular in the business community several years ago. Soon, M.B.O. was adapted to colleges, religious organizations, clubs and other groups that wished to accomplish goals. Likewise, concepts used to solve problems in areas unrelated to work might be applied at work.

Being saturated in a corporate culture can inhibit the creative thought process. Sometimes being immersed in a certain culture limits a person to what everyone else in that group views as possible, or acceptable, thoughts and behaviors. Perspective is gained by allowing oneself the time to reflect on a situation from various points of view. Seeing the world through the different lenses provided by various interests allows you to question previously held assumptions. Questioning established beliefs helps you to view everyday work situations differently and so leads to possible creative solutions to your company’s problems.

Use your spare time to cultivate interests unrelated to work. Play is as important for adults as it is for children. It will pay off by making you a better employee and a more creative person. It may cause a change in the way that you react to the problems you face each day. Problems really can be viewed as opportunities. Don’t allow yourself to always focus narrowly on the technical details of your job. Try to relax your focus in your spare time. Improve your ability to adapt to change.

The Over-Customization Problem

Logistics companies have seen their profits shrinking over the past few years. In addition to the economic recession, there is another major reason why third-party logistics firms are experiencing declining profits. The industry’s business model consists of custom-tailoring technology solutions to the customer’s request and approaching new projects with all new designs and implementation. For this reason, the industry is trapped in a competitive, downward spiral of expensive project-by-project customization and declining profit margins.

Third-party logistics providers need to relax this customer-centric business model. To do this, they need to step away from the project-based approach in favor of a product-based model. Logistics companies need to define the services offered by their company, keeping them clearly differentiated and so more profitable. Bundling services is only a good idea if the company gets paid adequately for the all of the services that they bundle. By adopting a more disciplined and strategic approach to customization of their services, third-party logistics firms can pay more attention to their bottom line. They can reduce the complexity and cost that is generated by trying to be everything to every customer and so make their own company more profitable.

In the past, third-party logistics firms have been inefficient users of IT. For instance, poor integration of acquisitions and unnecessary use of outsourcing are reasons why some third-party logistics firms continue to support multiple IT platforms. This is a costly mistake. Unless these companies consolidate their IT systems, they will continue to face unnecessarily high cost structures and complexity.

Third-party logistics firms can take steps to solve these problems by providing customers with targeted responses to customers’ real needs that fall within the logistic firm’s domain of expertise. This approach requires training third-party logistics firms’ sales forces in diagnostic, consultative sales. It also requires admitting when your firm’s services cannot address all of the customer’s needs. Finally, third-party logistics firms should develop modular, high-value, IT-intensive products that sit on top of a common, company-wide IT infrastructure.

Economic hard times require innovation for companies to survive. You should put talented, imaginative people in an environment where they can introduce the kinds of ideas that will shake up the competition. However, you should also know when to “stick to your knitting”. Concentrate on what your company does best. Spend money to put only the best ideas into practice. Companies are often better off with only a small amount of innovation and a focus on operating efficiently.

Improving Logistics Improves Your Business

Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

Attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.

Tough Pricing Environment

Price Maintenance/Improvement

For the past few years, companies in most U.S. industries have had difficulty increasing their prices, due to increased global competition and slack demand. This lack of pricing power definitely extends to the transportation industry. Pricing power remains limited in transportation, given strong competition and reduced demand for transportation services, although spare capacity is being eroded. Although many trucking companies have gone out of business in the past few years, overcapacity in all segments of the industry still exists.

You must always integrate pricing decisions with strategic marketing decisions. For instance, decentralizing most pricing decisions may be the best way to determine what customers are willing to pay, as pricing will vary between geographic areas and market segments. However, the more decentralized your pricing process (that is, the more pricing authority you push out to the field, be it to regional managers, district managers or salespeople) the higher level of pricing skill you need to build in those people. Additionally, you need a higher level of incentives tied to pricing in their compensation plans. A lot of companies push pricing authority out to the field, but fail to create the conditions for success. The salesperson plays a critical profit-generation role either in negotiating individually, or in providing the information upon which headquarters-level executives make pricing decisions. If you decide to decentralize pricing decisions, you also need to monitor performance more closely, in order that your profit margin is maintained.

Price rigidity (stickiness) is defined as when prices do not adequately change in response to underlying cost and demand shocks. The more monopolistic the market, the stickier pricing becomes. Even in markets with a host of competitors (like LTL trucking), rivals often take into account the prices charged by other companies when they set their own prices. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. Your own price elasticity of demand measures how much business will be lost to another company within the same mode, with a given price increase. Quantitatively, an estimated price elasticity measures the percentage change in quantity demanded (or supplied) resulting from a 1 percent change in the price, other factors constant. Within each mode, each company will have its “own” price elasticity of demand.

Historically, the average “own” price elasticity of demand for North American trucking companies is relatively inelastic (-.5). This means that a price increase of 10% will result in a decrease of 5% in quantity demanded, for the services of the average North American trucking company. However, in today’s recessionary economy, this average price elasticity has increased, due to overcapacity. The average may now be closer to -.7, -.08 (or higher), meaning that a price increase of 10% will result in a decrease of 7%, 8% (or more) in quantity demanded for the services of a company increasing their rates.

This recession has created a “Catch 22” situation for most trucking companies. Is it worth the calculated risk of losing some of your business to maintain the average profit margin on all of your business? After all, a one percent improvement in price yields bigger gains in operating profit than a similar improvement in variable costs, fixed costs, or volumes.

Price maintenance/improvement shouldn’t be approached as a project that you can complete in six months and then move on to the next thing. It is a constant process. With changing market conditions, you need to change the way that you think about price versus volume, versus market share. In addition, companies should concentrate on whether their customers pay on time as much as they do on their pricing.

Ultimately, prices must be within the range of what customers are prepared to pay. On the other hand, there is no reason to charge less than customers are willing to pay for your service. You don’t want to give away a price advantage your company possesses that is based upon superior service, in exchange for a temporary volume increase. It’s easy, when you start delving into the analysis and research about optimum pricing levels, to forget that the goal is to set the prices as high as you can, while still getting the customer to utilize your company’s services.

Key Factors to Consider in the Decision Whether to Own Trucks

When deciding whether to own trucks, there are many factors to be considered. Here are some of the factors that must be taken into consideration:

The project to be considered involves a fleet of trucks with an engineering life of 3 years (that is, the trucks will usually be totally worn out after 3 years). However, if the trucks were taken out of service, or "abandoned," prior to the end of 3 years, they would have a positive salvage value.

Here are the estimated net cash flows for each truck:
Initial Investment=$60,000

End-of-Year net:

Year and Operating Cash Flow
0 $(60,000)
1 $25,200
2 $24,000
3 $21,000

Year and Abandonment Cash Flow
0 $60,000
1 $37,200
2 $24,000
3 $0

The relevant cost of capital is 10%.

a. What would the Net Present Value (NPV) be if the trucks were operated for the full 3 years?
$ (1,478.59) For Full 3 Years

b. What if they were abandoned at the end of Year 2?
NPV = -$60,000 + $25,200/(1.10)1 + $24,000/(1.10)2 + $24,000/(1.10)2
$ 2,578.51 For Abandonment at end of Year 2

c. What if they were abandoned at the end of Year 1?
NPV = -$60,000 + $25,200/(1.10)1 + $37,200/(1.10)1
$ (3,272.73) For Abandonment at end of Year 1

d. What is the economic life of the truck project?
The economic life of the truck project is 2 years, as opposed to an engineering life of 3 years.

Of course, the way you operate your fleet can make a huge difference in the engineering life of your trucks. For instance, dedicating trucks to certain runs, with a limited number of people that drive each truck, will usually result in a longer life for each of your trucks.

There are many other factors to be considered in the decision whether to own trucks, including the amount of hours each day you keep the trucks productive. In addition to the basic calculations above, be sure to include all direct and indirect costs associated with the ownership option.

Some other costs of vehicle ownership include:

1. Opportunity costs associated with using company working capital.
2. Maintenance expenses.
3. If you operate your own maintenance facility:
- Fixed costs associated with fleet maintenance facilities, shop equipment, etc.
- Carrying costs of fuel, parts and tire inventories.
4. Vehicle washing, lettering, painting, etc.
5. Accident administration, safety, insurance.
6. Fleet information system and computer costs.
7. Supplies, uniforms, postage, etc. for the fleet department.
8. Rental or substitute vehicle expenses.
9. Fuel costs (if deciding to purchase fuel through the lessor).
10. Anticipated proceeds from vehicle sale.
11. You should also apply an allocated cost for fleet administration, including:
Costs to renew fleet permits.
Auditing and controlling of fuel, tires, and parts inventories.
Fuel and parts procurement time.
Vehicle acquisition and specification time.
Forms administration (pre-trip inspection, driver inspection reports, etc.).
Personal property and other tax administration.
Title, licensing and registration time.
State inspection monitoring.
Adherence to DOT and EPA regulations.

The Evolution of Consultative Sales

The Evolution of Consultative Sales

Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer.

Salespeople used to simply disseminate information about their companies, by phone, mail and in person. The Internet made that “information delivery” role almost entirely obsolete and practically eliminated the need for a salesperson, if the product was a commodity that could easily be purchased from more than one vendor. Today’s transportation, logistics and supply chain solutions customers can retrieve product information effortlessly. They can electronically optimize shipments, tender loads, schedule pick-ups, check delivery status in real time, contact customer support, bill their customers, pay their carriers and so forth. The salesperson used to play the intermediary in at least some of these activities. These activities are no longer a part of the salesperson’s domain.

Ironically, the availability of information has made buying decisions more difficult, particularly when the product or service being purchased is sophisticated or has business implications that require a certain amount of experience to understand. For example, many business owners would happily order their office supplies online, but wouldn’t want to purchase their complex logistics solutions, TMS, WMS or other enterprise software the same way.

Sales professionals today must help their customers understand and solve problems. This requires a deep comprehension of a customer’s core business issues. Sales professionals must now possess the technological savvy needed to creatively and appropriately use new tools to streamline the sales process and generate profitable transactions.

Today’s sales professionals must learn to manage the complexity created in the buying process by the explosion of information and the need to undertake more sophisticated, often strategic, purchases. Salespeople must often shoulder the burden of responsibility for the diagnosis of the customer’s problem, the design of solutions and the assurance that whatever has been purchased works well.

Consultative sales is evolving, from a model in which salespeople ask questions about the customer’s needs to one where they do not assume that the customer has a complete understanding of the problem. In the past, the role of the salesperson was to understand the expressed needs and to present his or her products as the best solution to them. The underlying assumption was that customers could diagnose their own needs and describe their desired outcomes.

Recently, a newer diagnostic consultative model has been developing, that assumes customers may not recognize that a problem exists. The salesperson examines the customer’s business situation, locates the root problems that are causing that business to run less effectively (in conjunction with the customer) and proposes ways to work with the customer to address the root problems. The result is a designed solution that the customer would not design, or request, if it were left to them alone.

Good consultative salespeople get to know and understand the customer so well that the product or service fits him and sells itself. Ideally, a good match between needs and benefits provided should result in a customer who is ready to buy.

The Case for a Business Case

The Case for a Business Case in Complex Sales

For complex logistics solutions salespeople, it is usually best to deal with the executives in an organization whenever possible, in order to avoid the process of getting a budget approved.

However, quite often the manager to whom you obtain access in an organization is not someone who can approve funding for the project. They may perceive the need to use your company’s services, but must first develop consensus within their organization about the need or timing for the project and obtain funding. Quite often the transportation department is competing against other departments for limited funding and the funding decision may be based on who has the better business case.

If you are a salesperson who inspires a buyer to initiate a particular type of project within their company, then you will have a head start on your competition with this prospective customer. In order to increase the chances of obtaining this customer’s business, the salesperson should offer assistance to the prospective buyer in crafting a business case that will be presented to the executives who will approve/reject the project’s budget.

Shortening the sales cycle is important. However, it is also important to deal with each prospective customer in a way that respects the way in which their company makes decisions. Speaking to the Traffic Manager of a company first and addressing the specific details with which he/she is concerned will sometimes work better than speaking with the top executive in a broad brush and generalized manner. It is important that salespeople both think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently.

If you do speak with the front line people first (who may see a need to get a budget approved for your company’s services), you can then help them to write a convincing business case that explains the need, costs and benefits to the people who approve the budget.

Contents of a Business Case
Outlined below are the chapters and contents of a typical report.
Executive Summary
Summarize the salient points in no more than 2 pages
Background
Outline the problem, opportunity, and current situation.
Project Description
Describe the proposed project in terms of size, function, location, approximate cost, technology, timing, and stakeholders.
Strategic Alignment
Summarize how the project aligns with the specific and published goals and strategies of primary stakeholders, especially organizations approving funding.
Environmental Analysis
Assess what similar organizations are doing to solve similar problems.
Summarize industry trends pertaining to solutions that meet the problem or opportunity.
Impact Assessment
Identify the types and severity of impacts on stakeholders for the preferred alternative (yours) and at least one other option.
Risk Management
Identify risks inherent to the project, the seriousness and probability of the impacts and the main risk management strategies proposed to manage the risks.
Costs and Benefits
Estimate capital, operating and recurring capital costs, and revenues for each viable alternative solution over an appropriate time frame, but no less than five years.
Identify both quantifiable and qualitative benefits for each viable alternative and for the preferred alternative, and indicate which stakeholders receive the benefits listed.
Conclusions and Recommendations
Summarize key findings from previous sections leading to selection of a preferred alternative and outline specific recommendations to the funding approval authority concerning how much funding is required and over what timeframe.
Implementation
Describe how the project implementation will be organized and controlled.
Approval
Outline the approval process and prepare a signature page for the legally authorized sponsor(s) to approve the business case, include complete name, title and organization of each signing authority.

Dedicated Contract Carriage

What Is Dedicated Contract Carriage?

1) Replacement of the current private fleet

2) Extension of the current private fleet

3) A complete unique design of a transportation solution to satisfy your business requirements

Advantages of DCC:
• Avoid Capital Expenditures
• Reduce Labor Cost
• Improve Service
• Low Cost Access to High Technology
• Focus on Core Business
• Increase Flexibility
• Simplify Logistics Organization

Reasons for Outsourcing:
• Core Competency: Rely on external expertise versus developing internally; allows buying company to focus on developing core competencies.
• Leverage: Achieve economies of scale in logistics offerings, technology
o development and transportation optimization.
• Technology: Ongoing access to the latest technology and optimization tools with costs shared among multiple customers.
• Labor: Flexibility in matching personnel to changing volumes & requirements.
• Better Information: Technology tools and analysis/optimization techniques which transform raw data into actionable information.
• Shared Risk: A partner to share capital risk and provide expertise as new service offerings or markets are added.
• Government Compliance: Leverage expertise and burden to comply with governmental regulations.

Customer Requirements-
Before Outsourcing Private Fleet:
• Develop a solid benchmark and knowledge of your current operation.
• Truly understand all costs associated with operating a “private fleet” – much more to consider than just driver wages, fuel, equipment, and maintenance.
• Understand the dedicated contract carrier’s actual capabilities.
• Be sure to check references.
• Lowest cost solution is not necessarily the best solution.

Determining Cost Factors:
• Utilization . . . More miles per truck = lower cost per mile.
• Wages for drivers … are they market-based?
• Number of assets . . . Trailers, trucks, drivers.
• Number of on-site people.
• Backhaul opportunities.

Breakdown of Private Fleet Costs:
• Driver Compensation:
• Driver Pay (includes bonus pay)
• Payroll Taxes
• Driver – Paid Time Off
• Driver – Benefits
• Driver – Turnover
• Purchased Transportation:
• Contractor Pay
• 3rd Party/Interlining/Cartage
• Fuel Related:
• Fuel and Use Taxes
• State Use Taxes
• Equipment Related:
• Tractor Ownership
• Trailer Ownership
• Tractor Maintenance
• Trailer Maintenance
• Legalization (Permits)
• Equipment Rentals
• Risk Management:
• Accidents/Insurance Premiums/Claims
• Workers Compensation
• Cargo Claims
• Other Equipment Repairs
• Communication:
• Telephone/Fax
• Satellite Usage
• Satellite Ownership
• Driver Recruiting Costs:
• Advertisement
• Drug Screen
• Training
• Pre-Employment Physicals
• Other Operating Cost:
• Tolls
• Motels
• Other Costs
• Overhead Cost:
• MIS Charges
• Facility Cost (office, furniture, utilities, etc.)
• Customer Service Cost: (salaries, computer equipment, etc.)
• Field Operations Management: (salaries, comp. equip, etc.)
• Recruiting
• Training

The Bid Process

The Bid Process

LTL and Truckload Bid Packages Should Include:

1. A carrier questionnaire
The questionnaire asks for background information about the company, including such things as size, number of pieces of equipment, insurance information, and references.

2. A copy of your contract
You want Carriers to review and agree to your contract up front. In the past there have been instances where a Carrier awarded the business would balk at signing a contract.

3. Your company profile
Outlines your company operation, including:
- What types of products you ship, along with handling requirements
- Minimum equipment requirements
- Plant loading hours, along with specific plant requirements
- How your bids are defined (i.e., cost per mile), and how invoices are paid
- Your criteria for accepting the winning bid
Other details such as, but not limited to the following, are required:
- Insurance
- Freight Terms
- Driver performance
- Delivery performance
- Associated support documentation
- Cash Flow
- Payment Policy
- Operating Ratio
- Claims Ratio
- Accessorial services
- Cost/term
Note: For LTL bids you must indicate the base tariff to be used and the FAK class ranges.

4. Bid template
An outline of shipments for each lane up for bid is presented. The template includes such things as:
- Number of historical shipments for each lane, broken out between dry and frozen
- Number of loads shipping as truckload, versus LTL

5. Carrier performance report
You should measure your Core carriers on several criteria, including such things as on-time delivery, accurate invoicing, and their number of missed loads. Include a copy of this report card with the bid packages so that Carriers understand how their success will be judged. Carriers who fail to meet your performance criteria will be replaced.

6.
In order to be considered, a Carrier must return a completed bid template, along with the following documents:
- Contract compliance statement
- Completed Carrier questionnaire
- Copy of insurance certificate
- Copy of Motor Carrier Safety Rating letter
- Authority (Common/Contract Carrier or Broker)
By receiving all of this information up front, you ensure that any bids that you consider are from carriers who meet your requirements.

7. Analysis
The carrier response should then be collected and a short list created. You should be able to establish first, second and third tier carriers, based upon geographic coverage and transit times. The carriers within these levels should be maintained for current and subsequent use.

8. Negotiation
Elimination of carriers and final review of balance
Renegotiations of any changes to bid package

9. Final Selection
Final selection is based on some of the following decision criteria:
- Size of the company: Smaller companies, where you can be a significant portion of their business, tend to give better service than the national carriers.
- Ability to handle refrigerated loads (if applicable):
If a portion of our shipments contain frozen product, or require heat.
- Carrier should have its own assets:
While most carriers do broker out some of their volume, you expect them to carry the majority of your orders on their equipment, using their drivers. This ensures consistent service. Also, carriers who have some of their own equipment are in a better position to respond to any last minute rush orders that may develop.
- Carrier must have a demonstrated history of providing outstanding service

Driver Retention

Driver Retention

Labor is the single biggest cost for any trucking company. In unionized trucking companies in particular, labor costs (including strikes) can have a large effect on the continued existence of the company. In addition, driver shortages have made labor costs and availability for trucking companies troublesome. Driver shortages have negative ramifications on the economics of the trucking industry. Until recently, several trucking companies reported that they had more freight shipments and fewer drivers to deliver the goods. The current economic recession is only providing a brief respite from the driver shortage problem.

Driver turnover is a big part of the driver shortage problem. For instance, when the economy is healthier than it is now, around half of drivers with US trucking firms leave their jobs within three months of starting work. Many of the drivers who leave their jobs in the first three months of employment are thought to quit because of some sort of personality clash with the employer. In some cases, according to the researchers, the methods of operation of the company are not fully explained or understood at the initial recruitment stage. A possible solution would be to make more use of realistic job previews that would help to reduce the gap between the driver's expectation of what the job entails and the reality of life on the road with the particular firm. Being sure from the start of what the job entails, through greater clarity at the interview stage, should help a driver to cope with any consequent job-related stress.

Chronic driver turnover can harm a firm's competitiveness though disrupted delivery services, expensive equipment being under-used and excessive recruiting expenses. Various attempts have been made to address the problems, many firms boosting pay, others rewarding long service or introducing bonus programs for safe-driving records, profit-sharing schemes, flexible schedules and reduction in non-driving activities. One firm even invested $6 million in a state-of-the-art driver-training center.

One idea to reduce driver turnover is to target drivers with more than five years' experience. An increasing number of firms require drivers to have at least one year of driving experience, but the researchers recommend that trucking companies target drivers with more than five years, as the cost of switching to another job is low for a driver who has devoted a smaller amount of time to his or her profession. Recruiting drivers with more than five years' experience may, however, involve the offer of special incentives, such as sign-on" bonuses or a merit pay raise linked to their experience, as well as formal recognition of their years of experience by treating them as "leaders" or "mentors" with greater authority to make their own decisions. The researchers recommend that recruitment and retention strategy should involve clear identification of incentives that work for the profile of driver the company wishes to attract.

Good driver training and retention programs can significantly reduce driver labor costs. Therefore, there is a need right now to formulate viable driver recruitment and retention strategies which will alleviate a future driver shortage problem. Driver recruitment and retention strategies include a sign-on bonus, profit sharing, flexible driving schedules, driver recognition, career advancement opportunities, and reduction in non-driving activities. Creative driver recruitment and retention strategies are increasingly necessary to the continued survival of any trucking company.

Technological Factors in Trucking

Technological Factors in Trucking

As trucking companies are looking for the latest advantage, they are stepping up their use of rapidly improving technology, particularly wireless technology. The aim of the increased use of information and telecommunications technology is operational efficiency. Operational efficiency is a critical business requirement aimed at shaving company costs, increasing company reach and doing more with the same resources.

Trucking is now the midst of a radical transformation. Led by the large industry leaders, the trucking industry now utilizes many forms of technology, such as cellular phones in trucks, email communication for both management and hourly employees, RF (transponder) communications to transmit data from moving trucks at both toll booths and weigh stations, hand-held wireless technology devices for drivers to record their pick-ups and deliveries, GPS tracking technology that is linked to interactive websites offering real-time shipment information, dispatching software for pick-up and delivery operations, as well as data collection terminals on the docks for recording facility production. Twenty years ago, production figures for the dock, drop yard and drivers on the street were all manually recorded with paper and pencil. Today, you cannot stay in business unless you keep up with technological change.

GPS technology in particular shows promise for future uses by the trucking industry. Qualcomm, which supplies satellite tracking and messaging services to more than 300,000 trucks across North America, is testing GPS truck-trailer locks that would allow cargo to be unloaded only at the correct location. GPS is really just the occasion for a link between truck and company that is constantly being exploited in ways that are unexpected. Truck drivers may use GPS technology to have part of their pay zapped to special cash cards as soon as they pick up a load. In this way, the driver’s miscellaneous expenses can be paid by the load itself.

Today’s IT systems convey GPS locations of dispersed company trucks, space available on each trailer, appointment and closing times for customers, maintenance records and current operating condition of trucks, hours of service logs for drivers and a multitude of other data that give managers a broad overview that helps to facilitate decision-making in dynamic situations. The internet is used by many customers for all of their communications with trucking companies. Rate quotes are obtained, pick-ups and deliveries are scheduled, damage claims are filed, shipments are traced, invoices are received and bills are paid, all using web or email-based technology.
For carriers, software suites are available that combine GPS tracking, routing, dispatch and on-line freight payment. There are several sources for this type of software suite. These systems can be used to optimize freight lanes and routes for an entire fleet, as well as develop map-based directions for drivers and follow vehicle movements. Combined with the suite’s dispatch function, the logistics module provides information to help fleets assign routes, drivers and vehicles for maximum productivity.

Shippers can now feed P.O. numbers electronically into online TMS applications that convert the purchase orders into optimized shipments, perform tenders to competing carriers, schedule pick-ups, provide shipment tracking/proof of delivery, handle all freight payment responsibilities and supply the customer and carriers with customized reports.

Currently, market forces are spurring increased technology in the trucking industry, as competition accelerates between the largest trucking companies to develop the best technology infrastructure, most recently through aggressive use of wireless technology. The market leaders are forcing the rest of the industry to follow their lead, or risk becoming obsolete.

Quality, Cost and Service

Quality, Cost and Service


During this economic recession, it seems that the emphasis at most trucking companies has been placed almost exclusively on cutting costs and providing lower pricing to customers. Necessity has forced most companies to concentrate on cost cutting and lowering pricing. However, when we emerge from this recession the carriers that provide the highest level of quality and service will still be the winners in the long run. Smart companies will only make cuts that don’t damage their ability to provide quality and service to their customers.

The three critical success factors are service, quality and cost. We have some degree of control over all three of them, but have the most control over the way we treat our customers. This is an element of the service factor. In trucking, it is at least as important as product quality (good transit time, low claims ratio, etc.,) and low cost. It is hard to say which of the three critical factors are the most important, but we can always control how we treat our customers, even when costs and quality aren’t meeting our standards.

Quality exists when a product or service meets customer expectations, at the minimum. It increases as customer satisfaction increases. In order to retain existing customers and attract new customers, an organization must produce high-quality products and/or services. If quality is poor, a company must identify the problems and bottlenecks, redesign their products/services, or lose customers by allowing their products/services to be sold as less than acceptable. Therefore, when quality is poor, costs increase and customers are lost. Talking about quality is common in most firms and a great deal of time is devoted to quality discussions at meetings. However, unless concrete steps are taken to improve quality, it will not improve.

The traditional view assumes that improving quality always trades off against lowering costs and that costs will increase with attempts at quality improvements. The quality-based view believes that firms should always try to improve quality and that higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but the quality improvements reduce costs in the long run.

The cost of lost customers cannot be exactly calculated. The lost revenue from each lost customer can be approximated, as well as the costs associated with securing new customers. However, the damage to a company’s reputation cannot be easily approximated. Once a reputation is damaged, it is very difficult to repair the damage, even if quality is improved. Companies with bad reputations must offer lower prices to sell their products than do companies with better reputations. Delivering products and services that meet or exceed customer expectations is essential for the survival of a firm today. In the long run, quality improvements pay for themselves.

Prevention costs are incurred in order to prevent defects. Appraisal costs are incurred in order to detect defects in the services already provided. Internal failure costs are incurred when a company detects defects before delivery to the customer and external failure costs are incurred when defects are detected after delivery to the customer (damages, shortages, etc.,). External failure costs are the most costly, as they may result in lost business and damage to the company’s reputation. If defects are detected and eliminated (or mitigated by good customer service) before getting to the customer, the loss of future revenue that is prevented outweighs the costs involved in the prevention and detection of defects.

We’ve all heard it said that quality is not free. You must first pay to improve quality. However, it pays a firm back in the long-run to improve quality through the retention of existing customers and improved reputation, which leads to new customers and revenue. Monitoring variations in quality provides warning signals to help managers distinguish between random variations and variations that should be investigated. Any deviation from specified levels of performance that exceeds what is deemed statistically significant can be investigated and improved. Managers can work to first control the most out-of-control processes. The effects are identified and then causes are identified for the effects. After the cause of the variation has been determined, corrective measures can be attempted.

The need to reduce the amount of time between when a customer places an order to when they receive it is an example of the importance of time in today’s business environment. Trucking companies play an integral part in reducing cycle time and inventory carrying costs for their customers. Processes must work correctly every time. Potential problems must be anticipated and corrected before shipments are tendered, if possible. Consistency is also important.

The balanced scorecard reports a group of performance measures that monitor both financial and non-financial performance. Changes in the non-financial measures are likely indicators of changes in financial performance. So, with balanced scorecard performance measurement, the performance measures should bear a cause-and-effect relation to each other. Improvement of one performance measure should lead to (or be accompanied by) the other performance measures. If employees see that management is measuring an item, they will likely focus on that item, if they have some control over it.

It is hard to say which of the three critical factors are the most important; quality, service, or low cost. Trucking firms should continuously try to improve all three. Higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but the quality improvements reduce costs in the long run. Cost cutting is necessary and healthy, as long as you’re not cutting too deeply. However, price slashing will not help your company to grow in the long run. Finally, we can always control customer service (how we treat our customers), even when costs and quality aren’t meeting our standards.

Truth and Perception in Sales

Truth and Perception in Sales


Some people believe that is there no such thing as truth in sales, only perception. However, it is certain that all beliefs cannot be considered equal in truth. Also, what is true or false is independent of what we may believe is true or false. In addition, some statements are neither true, nor false, but a matter of opinion. Although it is apparent that truth is not entirely relative, I advise an approach to sales (and marketing) that calls for tolerance of the views of others, and the ability to use their views as a starting point for persuasion.

There is a group of philosophers called “logical positivists” who said something similar about truth. An English philosopher named G.E. Moore illustrated the difficulty raised when people disagree about statements that are neither true nor false logically, but involve ethical or qualitative statements. Moore said, “If a man said that thrift was a virtue, and another replied that it was a vice, they would not … be disputing with one another. One would be saying that he approved of thrift and the other that he didn’t; and there is no reason why both these statements should not be true.”

This is similar to the ever-present struggle between the price and quality of services provided by transportation companies. Which is more important to you? Prospective customers fall anywhere along a continuum from primarily valuing low cost to those who primarily require excellent service/quality from their transportation providers. In sales, the best approach is to try and achieve the customer’s optimum balance in their perceived levels of both cost and quality/service in order to obtain the best overall value for the customer.

Whenever I read a book, I try to grant the writer his (or her) starting point. Whether you believe that the picture painted by an author is believable or not, you must read a book accepting the starting point that you are given by the author. Similarly, when dealing with others, you must first try to establish their perception of things and begin from their point of understanding. Trying to convince someone all at once of something that they believe unlikely or impossible is much harder than gradually leading them to believe something through the incremental introduction of ideas close to those they already accept as true. Perceptions can be gradually altered in this way. However, it is usually counter-productive to try and tell people that their perceptions are wrong.

Gradually introducing facts that are relevant to changing a person’s perception about something is usually much more effective than attempting to show that the person’s feelings about something are ‘wrong’. For instance, if a person believes that “one trucking company is no different than another”, you must probe the person to discover why they believe this to be true. In the course of listening to them, you will discover the problems that this person has faced with trucking companies in the past and so learn the approach that you must take in altering their perception about your company.

This tolerance of other people’s perception of “truth” makes a big difference in sales and marketing. One can be an aggressive persuader while still maintaining the dignity of all parties involved. A good salesperson will sell ideas in an aggressive way, while maintaining the dignity of all parties, without arrogance.

Talk to your customers, work hard on your questions and really listen to what they say. Use what you hear. I believe that talking to consumers face-to-face is the best place to start and the best place to finish. Once you’ve determined the people who use your service/product, or are good prospects, you interview them until you gain some insights. You’ll get better results if you make the other person feel comfortable, so do everything you can to do so. Be honest, low-pressure, interested, non-threatening and persistent as to “why”. Listen hard for what people mean, not just what they say. Try not to approach the interviews with a predetermined end result in mind. Don’t ask leading questions to achieve that result and do try to determine the underlying reasons for opinions that are expressed. This is a way to determine whether the perceived need of the prospect might actually be a symptom of some other unfilled need. Then, take what you’ve learned and try to develop an insight as to what people really want (or need) and how you can position your product so that your particular brand will fill those needs (if it’s a good fit).

In sales and marketing, sometimes truth really does not matter as much as perception. However, I am not implying a world without moral or logical standards. Rather, an approach that employs tolerance of the views of others, in order to obtain the benefits of appealing to someone from a common starting point of understanding, will benefit you in sales and marketing (and life in general). You don’t have to agree with someone to acknowledge their beliefs and understand their motivation.

Globalization

Globalization

Over the past several years, the U.S. economy has become more integrated into the global economy. Many companies throughout the world are managing worldwide production and distribution systems. “Changing patterns of world trade not only affect transport flows, they affect modes used. Products that are received by truck from domestic suppliers may be obtained by containership and doublestack train from overseas suppliers or, if their value is relatively high or delivery speed important, by air freight”. Trucking of some kind is involved in order to bring these shipments to their ultimate destination. However, as production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as intermodal service, air freight cartage and logistics services.

No steps should be taken to stem globalization of the U.S. economy. Globalization of the U.S. economy, while painful for some individuals and corporations has had a huge positive effect on the entire world. However, in order to protect individuals and preserve the environment, continued attempts should be made to create worldwide standards for such controls as environmental, fair labor and copyright laws.
America has the resources and responsibility to provide a social safety net for its citizens while attempting to be competitive in the worldwide economy. John F. Kennedy once said, “If a free society cannot help the many who are poor, it cannot save the few who are rich” . People expect their governments to serve their interests and to make decisions that will improve their chances to achieve a better existence. This statement applies to all the nations of the world. Policy makers must attempt to shape the forces of globalization in positive ways and work together to reduce inequalities within (and between) countries.

Capitalist ideology should be tempered by the fact that individuals, firms and especially national cultures, are more complex than the rational profit maximizers described by economists. For capitalism to succeed globally, it must be made bearable for the different cultures that are involved. Markets cannot exist independent of a society’s values. It is wrong for the most powerful economies to try and force other cultures to adopt beliefs or methods in order to participate in the global economy. Basic rules of fair trade should be all that are required. If not, we will have many countries, groups and powerful individuals who choose to stay outside the world economy. These outsiders may resort to violent social protest (such as the 9/11 attacks) or war to state their cases, achieve their aims, or simply vent their frustration. For disenfranchised non-participants in the world economy, the most effective way to get attention paid to their situations may be through violent protest or war.

All multi-national corporations and countries are global citizens with global responsibilities. The largest responsibility is to not unfairly exploit the workforce or environment of any country for economic gain. So that basic rules of fair play in business and government are followed, international organizations such as the WTO, World Bank and IMF have been created. So that these organizations aren’t controlled solely by business interests, non-governmental organizations such as The World Wildlife Fund, Amnesty International and Green Peace exist to act as watchdogs. This process of monitored globalization has been proceeding rapidly over the past few decades. Social protest (such as the riots in Seattle) is also a part of the process, influencing decisions made.

Fear of losing one’s job, health benefits and other insecurities that come with globalization have fueled a backlash against it in America. Some politicians try to capitalize on this fact and have been fairly successful in making this case with some Americans, that global trade threatens some American industries and workers. This assertion is correct. But, what is bad for an individual (or a company) is not necessarily bad for the country. This zero-sum view of the world implies that one country’s gain is another country’s loss. If this were so, global trade and investment would not flourish. These fear tactics work best with people lacking confidence in their own ability to compete and so in America’s ability to achieve economic growth through its own people, values, resources and institutions.

In the current recessionary business environment, our government has become more protectionist. I believe that this is a shortsighted step backwards, towards the isolationist policies of the past. America owes it to itself and the other countries of the world to work toward further trade liberalization. Raising barriers to achieve protectionist equality with trading partners will not benefit anyone. Many countries that fear the culture and economic power of the U.S. react with protectionist policies. We must be the free trade leader in these cases and unilaterally open our markets to imports from these countries. In time, the benefits of two-way free trade will become apparent to them. Meanwhile, we benefit from less expensive products and the ability to deploy our capital to its most productive uses. Unemployment may result in certain industries, but the long-term picture for our economy will improve. Our social safety net should help retrain and support those of us affected by the temporary job losses.

We must manage globalization carefully to reduce glaring inequalities and preserve the natural environment throughout the world. The example set by multi-national corporations and the leading industrial countries will determine the success of global capitalism. If globalization weathers the current recession, I believe it will be irreversible.

Trucking will continue to be required in order to bring products to their ultimate destinations. As production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as logistics services intermodal service and air freight cartage.

Business Ethics

Business Ethics

It seems that every week we hear about another company that attempts to defraud its customers or employees. The recent Bernie Madoff scandal, real estate scams, insider trading, betrayals of confidentiality, telemarketing and ads that prey upon the fears of the elderly and other business ethics violations are common occurrences. Ethical violations usually result from conflicts between doing what is best for you and what’s best for others.
Business ethics cannot be separated from personal ethics. Many people try to make a convenient distinction between what is allowed in business and what it means to be ethical in their private lives. What is considered duplicity in a person’s private life is often called shrewdness in business. However, a clever falsehood that makes one financially prosperous is still a lie. Moral weakness takes possession of people (and businesses) by slow and imperceptible degrees. The effects of being unethical are much the same for businesses and individuals. Unethical behavior threatens the bonds of community that allow people to live and work together and so adversely affects us all, both businesses and individuals.
Here are some ways that unethical behavior adversely affects individuals and businesses:
First, unethical behavior creates a lack of trust towards anyone who develops a reputation for it. Conversely, if a person (or business) has the reputation of being fair and upright in all dealings, they will possess the confidence of all who come in contact with them. Companies and individuals are both affected in this way. Would you invest your money with Bernie Madoff’s company?
Second, a sense of self-respect, based upon good character, is important to both individuals and businesses. If your reputation is grounded in deception, your opinion of yourself (or your company) will be poor. Self-respect is nearly impossible if one is constantly worrying about being caught in a lie. Both individuals and businesses possess character. Character is formed by a course of actions, by many little acts and decisions over time. A person (or a business) should have a determination to form its own character, after the pattern of its own ideals and ethical values. No one should allow their character to be determined solely by the circumstances of the marketplace, or their job description.
A third, and very important, factor to consider are the legal problems that companies and individuals might experience when they violate ethical standards. Lying in a court of law, insider trading, falsifying documents and many other examples of business ethics violations are also violations of the law. Even if honesty does not appeal to you based upon the good that it does for your reputation and character, it is still a good policy to be honest, if only because breaking the law could mean legal trouble for you.
My solution to navigating the ethical conflicts between doing what is best for you and what is best for others is to apply certain tests to all decisions that you make, both in business and your private life.
First, ask yourself if you think the decision would be fair if your role was reversed with that of the other party and the situation were similar otherwise. What’s good for the other person should also be good for you.
Second, ask yourself if you are being honest. Are you exaggerating? Exaggeration is a form of falsehood. Are you omitting any relevant information? It is always better to admit shortcomings before they are discovered by the other party and so be able to present them in the best possible light.
Third, are you making or implying any promises that might not be kept? Most people know that guarantees should be in writing. However, none should be implied where they don’t exist. Always tell the truth about your company and yourself. The buyer should not have to beware.
Both in personal and business situations, these three tests (at a minimum) should be applied before making any decision. Ralph Waldo Emerson said, “Nothing astonishes men so much as common sense and plain dealing.” Good business ethics are built on good personal ethics and are the key to profitable, long-term relationships.

Fuel Surcharges

Fuel Surcharges

The entire investment of a small carrier can be in motor trucks. Even for the largest carriers, by far the greatest share of investment is in trucks. For this reason, fuel costs are second only to labor costs as a percent of total variable costs. Truckload carriers can have fuel costs as high as 30 percent of their total costs, while LTL carriers usually are closer to the 10 percent mark. The reason for the difference is that LTL carriers have higher fixed plant and labor costs associated with the consolidation of many smaller shipments for each trailer loaded. Fuel prices for LTL carriers represent a smaller percent of greater total costs.

The most unusual thing about the implementation of fuel surcharges by motor carriers is that the carriers with the highest ratio of fuel costs to total costs have not been the first to implement the surcharges. These surcharges have been instituted first by the LTL carriers.

One explanation for this is that the LTL pricing structure is more conducive to the acceptance by shippers of these extra charges. The complex system of LTL freight classifications, combined with regular base rate increases, has created an atmosphere of acceptance of charges that are imposed by all carriers in the LTL market simultaneously. The truckload carriers that charge on a per-mile/lineal foot basis are in a more competitive situation. With no base rates to increase as a group, they individually decide when to add fuel surcharges. For this reason, they usually follow the LTL carriers in implementing fuel surcharges. However, the smaller profit margins of the LTL carriers probably also contribute to their being first to implement fuel surcharges.

Although motor carrier deregulation has been good for the economy in general, it is agreed that there are instances where regulation is good for everyone. I propose that government-mandated fuel surcharges would benefit all parties. They would make the motor carrier industry more competitive by leveling the playing field for all carriers, by weakening the fuel surcharge advantage of certain carriers. Mandated fuel surcharges would bring uniformity of fuel surcharges and predictability for both shippers and carriers.

Are surcharges bad for the economy? At worst they fail to protect the U.S. consumer, in the short run, from the inflationary effects of oil supply shocks. Fuel surcharges actually may be good. Passing price increases quickly down the economic chain causes the adjustment mechanism of decreased demand for oil to occur more quickly. Protecting consumers from the effects of oil price shocks simply prolongs the crisis. Mandated fuel surcharges make good sense.

Asset-Based LTL Companies and Short-Haul Brokerage Services

Asset-Based LTL Companies and Short-Haul Brokerage Services

Because neither rail service nor air freight present LTL trucking companies with a significant threat as substitute products, there are really no good substitutes (other than same mode competitors and the third-party logistics industry) for the services provided by asset-based LTL trucking companies in the United States. For this reason, many LTL trucking companies have created third-party logistics or brokerage divisions in order to counter the threat posed by 3PLs.
Third-party logistics services usually own no assets, but instead act as brokers of asset-based transportation company’s services. These logistics services rely upon their technical expertise with computers and software, as well as their bargaining power with asset-based transportation companies, to provide shippers with a variety of low-priced transportation alternatives.
If all services offered by the company are sold by every salesperson, there is no danger of cannibalization of an asset-based company’s LTL business when providing a brokerage service of this kind. By acting as a broker, the company can offer low pricing for “out of area” shipments, as well as for large volume LTL and truckload shipments (using another trucking company’s equipment) thereby ensuring that their own capital equipment is used for more profitable business.
Between 1993 and 2002, the total amount of freight transported in the United States grew 18% to 16 billion tons, and the value of that freight grew 45% to $10.5 trillion. Of that amount, trucking moved 64% by value and 58% by weight. It is sure to have grown since that time. I apologize for the dated information.
The majority of shipments made by the average U.S. shipper are less-than-truckload (LTL) shipments that require next day service within approximately a 300 mile radius of the origin terminal, or second day service within 500-600 miles, but not at a specific time of day. There is a great demand for this type of service, but also a great number of companies able to provide it.
The majority of tonnage hauled by motor carriers today travels fewer than 500 miles. Regional trucking was the fastest growing segment of the trucking industry in terms of change in net spending between 2001 and 2002. During that same period, spending on national LTL service declined by 4.4 percent. Since then, the situation cannot have changed completely.
Brokering short-haul truck shipments presents a great opportunity. Destinations that might be otherwise difficult to serve because of their location in remote rural locations (for instance, half-way between break-bulk terminals), can be more profitably served in this way. The company’s geographic area covered can also be expanded. At start-up, the company can simply obtain rate quotes from various LTL companies (letting them know that they have competition). Hopefully, the company can eventually use their volume of business to convince other asset-based trucking companies to conform to a standardized bid process, while keeping a searchable database for rate comparison purposes.
Establishing services such as this, that increase switching costs and discourage substitutes, should be a key strategy for any company. Offering the customer multiple services helps to increase switching costs and discourages the customer from seeking other out other transportation companies. However, each of the products sold must be clearly defined (in order to prevent cannibalization of other products/services) and each individual shipment must be profitable. The company must gain competitive advantage through an integrated offering of differentiated, profitable services.

Sales Strategy Synopsis for Transportation Companies with Multiple Services

Sales Strategy Synopsis for Transportation Companies with Multiple Services

A transportation company with several divisions, and/or offering multiple services, should cross-sell their services, in order to increase switching costs and discourage substitutes. Offering the customer multiple interwoven services helps to increase switching costs and discourages the customer from seeking out other transportation companies.
Convergent Marketing- The Company’s services should be branded with the parent company name. The company should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs.
Diversification- The greater the number of businesses in a company’s portfolio, the more difficult it is for management to find time to keep well enough informed about the complexities of all the businesses to manage them properly. Companies have the best chance of being successful at diversification if they capitalize on the existing relationships between business units by having them transfer skills and share activities.
Companies that sell multiple services should also determine the most powerful method(s) for showing prospects both the cost savings and the intangible benefits that they offer. Concrete examples of past successes should be used (such as case studies), including the details of how cost savings were achieved, concentrating on companies where the company acted as a lead logistics provider, or provided multiple services.
Sales Strategy- Listen to the customer. Understanding consumer needs and perceptions is the key to good strategic customer planning. Good companies will use both simple (point of service response cards) and sophisticated (customer focus groups) methods to find ways to improve their products and services in ways that are desired by customers.
Assess the competition’s market position, plans and strength- Competition has increased so much that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of the company’s transportation services (that the customer perceives are needed).

Account Retention: How to be a preferred vendor and more profitable. As the relationship matures into the retention phase, the account becomes very profitable if it is retained. Sales and service costs drop because the customer and vendor know how to work with one another. If the account is lost, the profit stream stops. If the account was a fairly new one, the acquisition cost might not even be recovered.
Customer satisfaction leads to customer retention, which provides the opportunity for account dominance or primacy. The long-term primary supplier typically gets higher realized prices as well. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.
The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. These decisions are often clouded by customer threats and competitive activity.
The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, makes promises that can’t be kept, poorly manages the accounts or neglects its customer liaison role, the profit machine falls apart.
Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer. Teaching salespeople standard methods of prospecting, follow-up, cross-selling and making sure competitive pricing proposals are presented to prospective customers, on-time and administratively correct, are examples of the sort of sales enablement that works best.

Collaborative Logistics is Trapped within Four Walls

Collaborative Logistics is Trapped within Four Walls

The second half of this paper has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)

Collaborative relationships between shippers and carriers (or, between shippers) result in greater efficiency and profitability, while satisfying the interests of all parties. An ideal collaborative logistics network promotes a high degree of visibility and activity coordination between multiple shippers, carriers, ancillaries and third-party providers. This results in optimum utilization of assets and benefits for all trading partners.
Shipper to shipper collaboration can mean co-loading trucks to make same route deliveries or co-occupying warehouses. Carriers gain by keeping their assets moving and full, assured of regularly scheduled assignments and hence dedicated revenue streams.
The ideal network should contain an optimizer that can determine the mode to be used for each shipment, whether LTL, truckload, parcel, rail, airfreight, or other. This optimizer should receive information electronically from shippers and use the information to create optimal shipments based upon many criteria. The rules that need to be programmed into the optimizer should consider such factors as what mode/carrier provides the lowest rates for the required transit times, the density, skid height and packaging of the product shipped (stackability), the dimensions/weight for loose carton (carton weight/dimension rules for parcel companies), acceptable hazardous goods classification for each mode (airfreight/truck/parcel), perishability of products shipped, appointment scheduling requirements (time limitations for truckloads with stop-offs and LTL transit time requirements), inside delivery requirements, tail-gate delivery requirements, and other possible accessorial charge considerations.
The ideal network should provide shippers with the carriers that offer the best rates within the prescribed transit times. After that, the optimizer must make sure that the truckload rates in place for each destination with the shipper’s truckload carriers will “kick in” at the point where the LTL rates match the truckload rate. LTL rates should not exceed published truckload rates in place for the same destination. The truckload rates must act as LTL caps and the optimizer must be able to determine when these thresholds are reached. In addition, the optimizer should be able to determine when the LTL carrier’s minimum charge exceeds the parcel rate for the same shipment weight and also determine situations where the number of cartons in a parcel shipment cause it to be more expensive than an LTL minimum (even though the shipment’s weight may be low). As far as I know, no optimizer currently on the market does a good job of optimizing between LTL and parcel.
In addition, collaborative networks employ customer-centric tools like tracking and tracing, which can be leveraged by the transportation service provider to better implement strategies like cost effective route planning, dynamic routing and rerouting. These networks can provide considerable savings on fuel, driver scheduling and help to avoid traffic congestion.
One big problem with providing this high level of optimization, tracking and tracing is that the networks currently capable of providing this level of IT sophistication must force their members to operate within their four walls. How can we accomplish the same goals, while opening up the network to a much larger group of shippers, carriers, third parties and ancillaries, such as warehouses?

(The following has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
“Co-suppliers have enormous opportunities for collaboration centering on logistics. The possible cost savings are huge for both truckload and less-than-truckload shipments: avoiding the potential problems associated with spot rates, arranging complementary backhaul (or reverse direction) movements, planning routes and consolidating shipments.
If only two shippers could know what each other is doing, they could leverage each other in innumerable ways. The payoffs start with lower costs but extend into even more important areas such as reliability, shorter cycle times, and greater flexibility. Multiply these benefits many-fold as more players get involved. All that is needed is a place on the Internet where communities of shippers and carriers can do business together.
Shippers want increasingly consistent service, predictable capacity, and lower freight charges on a unit cost basis. Carriers are interested in expanding revenue opportunities and asset utilization. Through the agility and efficiency of Web-based technology, everyone in the supply chain has the potential to achieve those objectives. Excellence in logistics is a must for many shipper firms, with the consistent delivery of product to the customer viewed as an ongoing, strategic objective.
Transport providers have stated repeatedly that they are operating on thin or non-existent margins, with little or no room for price negotiation. Thus, the e-commerce winners will be those companies that can deliver more efficient solutions that impact both the buy and sell side of the equation. For the shipper, that translates to increased product velocity in the logistics pipeline while reducing logistics unit costs. For the carrier, it means a dramatic improvement in logistics asset utilization and improved transaction efficiencies.
The Internet has become the key enabler for shippers and carriers to collaborate for mutual benefit. Winning e-commerce solutions will be integrated with shippers’ ERP and order systems, delivering forward visibility to demand for logistics services to carriers, while efficiently re-circulating and sharing excess capacity through collaborative networks.
Application developers are offering logistics software that they claim will create efficiencies, despite the inability of the application to allow collaboration outside of the organization’s four walls.
The degree to which organizations share information and resources depends on their needs and the rules established jointly by members. The more an organization participates, the greater the potential benefits.
1. For collaboration to be successful, all members of a specific collaboration must be able to quantify the benefit they are enjoying from the process.
2. Rules for shippers and carriers when joining a collaborative network:
Investigate – Understand the value proposition prior to joining the network.
Integrate – Synchronize individual firm business process with those of the network.
Acclimate – Find potential partners on the network that may add value.
Negotiate – Establish the rules of engagement with a collection of partners.
Cooperate – Share resources according to the rules of engagement, transact on the network creating gains via shared resources.
Evaluate – Measure the benefit/cost of collaboration for each member firm.
Regenerate – Extend or regenerate the collaboration assuming it has benefited each of the member firms.”
7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)

How can we accomplish these goals, while opening up the network to a much larger group of shippers, carriers, and ancillaries, such as warehouses? How can we optimize the allocation of costs and benefits, so that the gains of a collaborative network will be equitably shared by all participants?

Strategy, Structure and Sales Budgeting

Strategy, Structure and the Sales Budgeting Process for a Multi Mode Freight Transportation Company

Many transportation companies have gone through some difficult changes in the past few years. These companies now need to communicate a strategy to employees for the future. A structure must also be designed to support this strategy.
In many multi-mode transportation companies, each product/service has had its own separate sales force in the past. The strategy of maintaining separate sales forces for different products has unnecessarily increased sales costs. In-house sales training should be required for all salespeople to teach them how to sell all products, as part of a total transportation package. Salespeople must be trained to determine which service or services are desired by each account to satisfy their needs and instruct the customers in how to request each type of service when completing bills of lading and calling in pick-ups. In this way, misunderstandings about service levels requested can be minimized and sale of all products can be maximized.
The current product-oriented structure of many organizations needs to be changed in order to make more efficient use of the functional managers and sales force of the company. A team structure is needed that will encourage all managers to act as integrators of a single-company strategy throughout the company and in turn bring local (and product) concerns to the attention of upper management. In the past, many transportation companies have had separate business silos pushing independent product lines, to meet standard customer needs. Instead, these companies should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs. A change in company structure may be required to ensure information sharing (and effort) to help drive these cross-product sales. This would give these companies advantages related to economies of scope, as well as a single company contact for the customer.
Employees must identify with the parent company, not with a particular product offering or terminal location. A healthy, single company culture should be encouraged in order to make the changes necessary to successfully implement the company’s strategy. Company parties, picnics and outings should be arranged, so that everyone gets to know and better understand the people with whom they work. A company newsletter should be published (on-line), at least quarterly. This newsletter should be sent to all employees and customers. Company-wide contests and recognition awards should be planned to reward the extraordinary efforts of individual workers and customers throughout the system. Annual Sales and Operations meetings should be held, to encourage a cohesive company culture, reward accomplishments and good ideas and to discuss the company’s strategy and goals.
The budgeting process relies on the sales budget being prepared accurately. Obtaining accurate sales forecasts and receiving employee support for achieving results beyond the established goals, can best be achieved through inclusion of employees in the decision-making process. This should be accomplished with an emphasis on rewards for company-wide results. A company-wide profit-sharing plan encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines.

Strategy:
I) The Company must gain competitive advantage through an integrated offering of differentiated, profitable services, selling all services as part of a total transportation package. Each of the products must be clearly defined and each individual shipment must be profitable.
II) In order to support this differentiation strategy, the Company must become a superior customer service company that sells all separate products with one cross-trained sales force.
III) The Company must become a company that communicates well across product lines, functions and terminal locations.
IV) The Company must use the proper control and coordination systems to support this strategy. Control should concentrate on measuring output and coordination on inclusion in the decision-making process, with an emphasis on results and a lack of emphasis on managing behaviors.

Proposed Structure:
I) An Executive Committee composed of the President/CEO, the Vice Presidents, the C.F.O., the Functional Department Managers (Upper-level Operations, I.T., Pricing, Customer Service, etc.,) and the Regional Sales Managers should be formed. Monthly meetings of the executive committee should be held to discuss operational issues (conference calls, or webinars) and annual (third quarter, fiscal year) meetings held to discuss strategy. This team will jointly decide strategy, yearly revenue goals, deal with operational challenges/problems and help to determine the budget.

The Functional Managers, Regional Sales Managers and Terminal Managers should be technically equal positions on the organizational chart. Issues should be discussed openly and considered from all relevant perspectives but the President/C.E.O. has the final say in all matters. Decisions should be reached by consensus whenever possible. The Executive Committee thus acts as a node at the center of the network, to coordinate product, functional and geographic information.

Functional Department Managers should be located at headquarters. Each functional department will be responsible for all services/products. The Functional Department Managers report to the Vice Presidents, with each V.P. handling assigned functional departments. For instance, the Pricing Manager and Customer Service Manager might report to the V.P. of Sales/Marketing, the Line-haul Managers and Claims Manager report to the V.P. of Operations and the Safety Manager and Loss Prevention Manager report to the V.P. of Human Resources. Other departments will be divided between the Vice Presidents. The I.T. Manager should report directly to the President/CEO.

Regional Sales Managers are responsible for training salespeople in the sale of all products. They may work from home offices. They will also be responsible for National Account sales in their areas. There should be no product-specific sales managers at this level in the company. They report directly to the Vice President of Sales/Marketing.
Regional Sales Managers should act as full-time integrators, who coordinate the communication of executive committee strategy across the company and help to ensure a uniform company culture. Regional Sales Managers also bring questions and problems from the salespeople and customers in the region they serve back to the Executive Committee.

Terminal Managers run local operations. They are responsible for their terminal’s profit and loss. This responsibility includes all aspects of local operations and sales, as well as maintaining a pool of local-area, owner-operators, if needed. Terminal Managers report to the V.P. of Operations. The monthly conference calls/webinars should be run by the V.P. of Operations to consult primarily with the Terminal Managers about operational issues, as well as the issues discussed in the two quarterly Executive Committee meetings.

Operations Managers (both dock and dispatch) are responsible for the aspects of each terminal that are assigned to them. They report to Terminal Managers.

Line-haul Managers are located at headquarters and coordinate movement of freight between terminals throughout the network. They are also responsible for coordinating expedited trucking moves (if that service exists). They report to the V.P. of Operations.

Line-haul Dispatchers are located at headquarters. Line-haul Dispatchers report to the Line-Haul Manager.

Customer Service should consist of local Customer Service representatives at each terminal, and a central Customer Service Unit at headquarters. All Customer Service Representatives report to the Customer Service Manager. They must also consult their Terminal Manager regarding operations capabilities before making commitments. Pick-ups and deliveries may be coordinated at the corporate or local level, but must be entered into the central computer as the pick-up is arranged.

Salespeople sell all company products. They may work from home offices. In-house training by the Regional Sales Managers, at each terminal location in the specifics of selling each product, should be thorough and ongoing. Both group training sessions and one-on-one training should be required. Salespeople report to the Regional Sales Managers. However, they must also consult the Terminal Managers regarding operations capabilities and the Pricing Manager for pricing. If disagreements arise, they are arbitrated by the executive committee, or the CEO. There are no single-product salespeople.

The I.T. Manager is located at headquarters and reports directly to the President/CEO. This is the only functional management position that does not report to a vice president, since the I.T. system is equally crucial to all departments and functions of the company. The Information System should include all functional departments in one, integrated computer network.

The Pricing Manager is located at headquarters. All spot quotes (e.g., volume rates), F.A.K. pricing and high discounts/low pricing must be requested through the Pricing Manager’s office. The Pricing Manager reports to the V.P. of Sales and Marketing. The Pricing Manager, in conjunction with the Revenue Accounting department, will periodically review all outstanding pricing to determine if rates are being used and if each account’s shipments are profitable.

An output control system should be employed, where planned annual profit sharing for all full-time salaried employees is based upon the operating ratio for the company. This encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines. This planned profit sharing for all full-time employees goes into effect after the operating ratio reaches a certain predetermined threshold. A certain percent of net income is set aside each year for this program.

Establishing Yearly Revenue Goals:
About three months prior to the start of the new fiscal year, the Terminal Managers and Regional Sales Managers meet with the Vice Presidents at the annual meeting, to begin work on establishing rough goals (and the methods to achieve them) for the upcoming year and to discuss the concerns of each terminal unit and sales region. The Regional Sales Managers then discuss individual goals (and the methods to achieve them) with each salesperson. Each individual is considered separately and goals are determined for each, based upon the nature of their individual market situation and the previous fiscal year’s results.
After the annual meeting, the VP’s bring the results to the President/CEO to discuss along with the entire Executive Committee. The Executive Committee then discusses company, product, regional and terminal concerns with the CEO and they jointly establish firm yearly revenue goals (and the methods to achieve them) for the products, terminals, sales regions and the total company. The respective Regional Sales Managers, Terminal Managers and Salespeople meet again at the terminal level after these high-level meetings, for a final chance to discuss their goals in-person with the salespeople and plan how to implement their plans before the beginning of the new fiscal year.
These yearly revenue goals are the basis for the sales budget, which is the basis for the entire master budget. This budget indicates the sales levels, cost levels, and the income and cash flows expected for the next year. The master budget is prepared with the estimates agreed upon in the executive committee. Involving all managers (as well as front-line salespeople) in the sales budgeting process, involves more of the company in the decision-making process than may have been the case in the past. This makes employees feel as if their input is valued. I believe that the estimates and quotas set in this way will be more accurate and more widely accepted than if they were simply established by a few members of upper management. The budgeting process relies on the sales budget being prepared accurately and employee support for achieving results beyond the established goals relies upon inclusion in the decision-making process, with an emphasis on rewards for company-wide results.