The Transportation Crunch

July 5, 2006 Staff

The transportation infrastructure is exploding. This was the subject of debate at the Consumer Healthcare Products Association meeting in Washington, DC on June 27, 2006. Consumer healthcare companies and others will all be impacted. The number of LTL (Less than Truckload) providers has consolidated. Shippers need to begin thinking about scenario planning and what the impact will be, and how products will be shipped in the next 3-5 years.

The Transportation Review Board cautions that infrastructure issues will not go away.

Congestion is a big issue. Toll roads will begin to have time-restricted access.
Access to cities will be limited, and transportation providers will continue to have surcharges.
Insurance rates are rising. Conway tried to pass on a surcharge of 1.5% for employee insurance, but was met with resistance.
Another problem is the driver shortage. We will need 539,000 new truck drivers due to retirement and expansion, and trucking is expected to go up by 80%.
Ocean freight backlogs at the ports will also be a problem, whereas railroad competition will not occur.

How receivers manage their docks will be a critical element. For people who can’t manage docks – shippers have switched the freight terms for those customers.

Jeff Shane, the Under Secretary for Policy with the U.S. Department of Transportation also spoke on this issue. He noted that, “Things are looking different to me. At the Ministry of Transportation, we typically see core constituents – airlines, truckers, ocean shipping, water shipping. But in the recent past – we have heard from users of transportation who come to Washington and tell us the system is no longer working for them.”

Bottlenecks

Shane says we are living in a JIT world – and we can’t depend on the system to deliver JIT. We are keeping a lot of inventory as a hedge against an inefficient transportation system – and this is costing us money. We all agree we want to create jobs, but we have to spend money on inventory to hedge against bottlenecks in the system – we are not creating jobs.

According to Shane, bottlenecks in the system are compromising economic growth, although it has never been translated into those terms before. The issue has not yet caught the attention of the White House. “We sit down with the President’s advisors – and try to impress on them the need to understand the importance of maintaining an efficient transportation system. We’re trying to get them to focus on what we will do for the last 3 years of this administration including ways of financing aviation, surface transportation, and creative ideas for the maritime system.

Entitlements are overwhelming. , Shane concedes that “we know there is no good news here. The financial infrastructure for highways and airports is not there.” Federal funds will diminish! Funding for highways is not sustainable. Airport funding is not sustainable. It is one thing to say we understand this – but it is another to say how we will address that problem.

The current infrastructure just can’t handle the volume of air traffic. The current technology for moving airplanes doesn’t have the bandwidth to handle to do the job. The need is for nothing less than an air traffic, multi-agency program to ensure that we can handle three times our current levels of operations. We are looking at fresh ways to finance our infrastructure – and how to manage the flow of traffic in the air.

Major issue is congestion

The major issue the country is facing is CONGESTION! The MOT has never treated it as a defining theme, nor as a fundamental impediment to growth. Shane emphasized the need for the Bush Administration to understand this issue and determine how to refresh highway and transportation programs – and accommodate the kind of demand that will be put on the system.

These urgent transportation considerations “need to be baked into the culture of Department of Transportation, and go through the next administration, whoever it will be,” Shane reports. “We are encouraging urban partnerships – selecting some cities, and looking at tools to respond to congestion issues. We’re looking at trade corridors and intermodel and international supply chains to determine what do we have to do to our ports?”

He projects that we will see more private infrastructure in transportation rebuilding. A $99M lease on the Chicago Skyway made the city solvent. It produced a surplus of $400M, which was put in a rainy day fund. Indiana is also privatizing toll roads –and the private sector is investing in the infrastructure.

A National Freight Policy

A National Freight Policy is being worked on, and President Bush has signed an executive order to look into the congestion issue.

Ports – The ports are seeking to improve throughput. We have to find more capacity and investment for the ports, and accept that this commerce will not stop due to congestion! It will flow into Mexico, Canada, Panama Canal – and this will happen.

Trucking – Trucking is a big problem. It is clearly not the safest way to move cargo. You will see more proposals for truck only lanes. They are willing to pay the toll if they see a return on those use fees and get the efficiency they expect. An infrastructure expansion is likely.

Air – A huge amount of work is being done on aviation to improve the infrastructure.

Railways – With the railways – this is a major conundrum, as they are private. There is no federal rail infrastructure program today. The current initiative coming out the rail industry is a tax credit proposal to reinvest in the infrastructure.

Current best practices

To manage some of these issues, companies that rely on transportation to move their products to customers have engaged in several practices:

Business Partner collaboration, goal alignment and innovation

Making freight more “Driver Friendly” through Productivity and Efficiency Improvements.
Eliminate backlogs of equipment at DCs and Plants.
Prepare freight for drivers to pick up, and go out of your way to make the drivers happy. This can make a big different on price you pay and service you get.
Impact of new hours of service – and what capacity issues are there.

Eliminate backlogs of equipment, prepare shipments ahead of time – this has a huge impact on the transportation community – and make your site a place drivers WANT to pick up at.

Customer Facing Logistics Directors

More drop trailers and/or strip unloads at customer DC’s.
Minimize surges and/or more advanced communications.
Full time directors working to several key customers – logistics directors.
Work with customers – they know them, and find ways to collaborate to make it an easier situation.
Convert deliveries to drop trailers via strip unloads where the driver doesn’t have to piece count every single piece – and make it more attractive. Try to minimize surges, or provide more advanced communication. In 2004-2005 – there were multiple sudden spikes in truck requirements – and companies had to pay deadhead charges to deficit areas. Companies need more time to prepare – to minimize and eliminate these charges and have the trucks waiting – working with logistics directors.

Jumpstart backhaul for additional capacity – and try to revitalize.

Vendor Management Replenishment

CPFR – put fewer trucks on the road.
Work with planning to put fewer trucks out there.

Continue to improve cube utilization of trucks.

Transportation will continue to be an issue in the future. Watch this site for more news.