Transportation Strategy in a Constrained Infrastructure: 30th SCRC Meeting Kicks Off Today
The 30th SCRC meeting kicked off today with a theme on “Transportation Strategy in an Infrastructure Constrained Environment”. This is a theme that was discussed a year ago at a conference in DC on Transportation Infrastructure, over coffee with William Lucas from Caterpillar. We talked about focusing on transportation as an issue that needs to be specifically addressed. Infrastructure came up time and time again in the BVL Study we worked on last year. This continues to be a major challenge as companies think about their long-term strategic planning investments.
As William discussed, the top 10 truckload carriers represent less than 6% of the total market. This creates strong bargaining power, but brokers are moving more and more towards playing a larger roll in truckload shipments. But drivers will turn down loads in lanes where they are not paid enough – and this is a challenging issue. Truckload is also evolving into complex multi-mode areas – and it has become a larger carrier and more dedicated set of issues. Truck drivers are also getting older, and a discussion with carrier JB Hunt, reveals that salaries are now over $65K for drivers.
Ocean carriers are also a challenge, as there is not enough capacity – and US imports exceed exports by 40B. This will continue to congest the ports, and it is tough to find carriers as there are a limited number of competitors. Another big challenge is around government regulations. First on the list are regulations around Class A drivers – and the 11 hour driving limit constrains when trucks can load, and driving time is being tracked electronically. The key is that it is helping and removing people from the road. It is better for safety but a lot of people are not making the same amount of money. Loads also have to be permitted, and each state has its own permitting requirements.Roads are becoming more congested, and many of them are aging.
Infrastructure growth is a major issue for companies who ship a lot, especially those like CAT who ship heavy permit loads from the ports. It is also happening at border crossings such as Mexico. The expansion of Panama has shifted shipments from West Coast to East Coast, but only Norfolk and Baltimore can handle these larger ships – and this will result in longer berths where will the funding be coming from for these port expansions – and it is something that is happening, but we aren’t sure how to handle it.
Rail repairs to existing infrastructure is a big issue, and rail companies are investing a huge amount in infrastructure. Replacement costs are going up. And there is a massive challenge with rail capacity due to the shale oil crisis. William also talked about the importance of having an integrated transportation strategy that thinking about packaging and planning issues – and the quality concerns are becoming more important. If we can’t protect it or get it to the line, quality will be impacted.
Matthew Drown from CAT then talked about some of the solutions that existed. Some of the solutions are from a strategy perspective, but also from a continuous improvement perspective. Depending on weight and velocity needs, decisions and optimal transportation strategies are impacted. As our growth increases, CAT uses heat maps and center of gravity studies to consider where our major shipments are going, but also looking at costs. Matt gave a great plug for our student projects that were used for transportation planning approaches. In 2011 a student project team focused on packaging and where there were changes in sourcing and whether weights were correct. In 2012 a port study was conducted by students to understand capabilities of ports and what existed, and whether to use Savannah and Charleston, considering their capabilities, number of calls, what types of shipments they are strongest with. The developed a tool to assist with decision-making. There was also a study looking at lanes coming out of Mexico – and to have a truck do a live load, vs. drop the load and the facility loads it and picks up the trailer. The team questioned whether a larger pool of trailers would be beneficial. As you have more trailers, there is a cost, but is the benefit more than the cost? In 2013 a study project looked at transportation regulations and permits, and what globally were the limitations on weights? A final team this year looked at volume readiness.
We are excited by the quality of the student projects and their contribution to the transportation team at Caterpillar.