Driving Up Costs

Escalating fuel prices, HOS and driver shortages are placing a tremendous amount of pressure on shippers, according to GMA’s survey.

Welch Foods Inc., Concord, MA, has begun using boxcar and intermodal "where it makes sense," according to Bruce True, manager of logistics. "However, we've had only limited success with these modes as the rates have increased faster than trucks in many of our lanes to the point where it is more expensive than truck, and the service is suspect. Because of that, rail is mainly a choice we make only when we have no other option to get the product to the customer-that is, no truck capacity is available."

2. Using trailers better.
Welch's is striving to eliminate air weight by ensuring customers that truckload orders are filling the truck, and by making sure consolidations are as full as possible. "We have also set up a crossdocking operation in Texas that allows us to ship truckloads of small orders into the south for redistribution. This has made our freight much more carrier-friendly in that market," says True.

Customer freight is inherently less efficient than plant-to-DC freight, according to Johnson of Land O' Lakes, because it is driven by orders and not loading efficiency. "This gap in customer freight utilization is affected by many variables: Land O'Lakes' trend toward lighter products, driver HOS rule changes in 2004 that reduced customer stops/orders per load, and some of our business practices, such as small minimum order sizes or all customers having the opportunity to order once per week.

"We continuously review this utilization metric for opportunity and have already made significant progress in this area. Customer freight utilization has improved by 17 percent in the last four years by more effective transportation planning and execution and some changes to business practices-primarily by going to a standard of three days from order to ship. That allowed us to plan freight more effectively and also helps us when we are competing for trucks."

3. Taking advantage of continuous move opportunities.
"We continue to look at doing this, both within our organization and in partner with some of our customers," says Welch's True.

4. Partnering with carriers to secure year-round capacity.
Welch's has always had such a policy in place. The company pays a year-round rate for year-round service. "We do not "dial for diesel," says True. "At the same time, we have always worked to be a significant portion of business for our carriers, which results in us getting preferential treatment when trucks are tight."

Says Johnson of Land O' Lakes, "In our annual carrier meeting, we communicate our anticipated needs to our core carrier group-volumes, freight timing, new lanes and other major changes. We also do a roundtable discussion of a selected topic of mutual interest. Last year, for example, we focused on the HOS change and ways to mitigate its impact.

"We feel we have taken a balanced approach to working with our carrier partners since transitioning to a core carrier strategy several years ago," he goes on to say. "Our long-term emphasis on partnerships and focus on addressing all elements of the freight equation-cost, capacity and customer service-have helped us work with our carriers and customers to navigate through these rough waters. We have been getting trucks under our product, but like everybody else, our freight costs are up significantly this year."

Different Strokes For Different Folks
Other companies that took part in the survey are dealing with transportation challenges and addressing them in different ways. For example, The Gillette Co., Boston, has faced capacity issues relating to driver shortages primarily in the truckload category for many years. More recent events like the HOS rule changes have exacerbated the driver shortage and associated overall capacity constraints even more.

"Overall cost increases have been driven by two major factors-limited capacity and high fuel costs," explains John O'Leary, director of North American distribution. "Shippers are very limited in terms of addressing the fuel issues. It is essentially an uncontrollable expense. The capacity issue however, is addressable and has been our area of focus."

Here is how Gillette has been addressing capacity:
- Fully leveraging its transportation management system (TMS) to optimize order consolidation, load factor, mode and frequency;
- Working collaboratively with its carrier base to remove inefficiencies. "Our goal is to help and support each other to solve problems and strengthen our relationships," says O'Leary. "This extends to our bid process where the focus is no longer just price but rather a lane-by-lane matching of volume against capability;"
- Expanding the carrier base to increase backup options;
- Increasing the use of other modes, such as rail; and
- Working with customers to reduce inefficiencies within their environment.

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