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An Executive CLM Roundtable Five-Year Forecast Trends in Transportation

by Fred Moody

At this year’s Council of Logistics Management (CLM) Toronto Roundtable, which focused on the theme, “Leadership in Transportation – Managing Change in the 21st Century,” the three-member executive panel was asked to focus on the transformation their company had undertaken to be a leader in their segments of the transportation industry.

This CLM Roundtable panel was comprised of: Vice President, David Binks, FedEx Canada; President and CEO, Heiner Murmann, Schenker Canada; and Don Schneider, CEO, Schneider National, Inc. Each of the CLM’s keynote speakers agreed, increasing shareholder value, market penetration and value to customers, are largely predicated on the integration of organizations and a comprehensive transformation of business practices. This panel was chaired by Grocery Gateway’s CEO, Claude Germain.

One of the most salient elements identified in corporate transformation during the evening by the panelists was information technology. It has helped to fuel corporate change and created visibility in the supply chain, enabling these companies and their partners to see the processes and challenges to be tackled proactively on an operational basis, as well as affording information for strategic decision making.

Mr. Schneider, who kicked off this roundtable, singled out visibility in the supply chain, information management and “the tools of technology” as critical elements that have led to reduced inventory levels and dramatic improvements in customer service. Technology has been vital not only on a transactional basis with regard to its considerable fleet of trucks and assisting customers, it has also enabled Schneider and its customers, such as Walmart and Kimberly Clarke, to share information and make more collaborative plans on a global level.

With a fleet comprised of some 14,000 tractors and 40,000 trailers, combined with more than 6,500 carrier partners, technology will be vital in helping Schneider to go beyond tracking a truck and tractor together. After they are untethered, and the tractor goes onto a train, or into a customer’s yard, it’s also important to be capable of tracking the tractor itself, Mr. Schneider pointed out. Schneider is working on these kinds of innovative technological solutions.

Despite the value created by technology and information management, concern about the financial health of the industry remains a daunting challenge, he emphasized. “One of the greatest challenges in our industry, and I am talking not only about the truckload side, but also the less than truckload sector, is the challenge of the financial health of our industry,” he said, referring to a record number of bankruptcies, low birth rates and the growing lack of available of drivers and dramatic insurance increases.

“Because we are large enough, financially, we self-insure up to (U.S.)$10 million on any incident, but you want to buy excess insurance and that has gone up by 250 percent.”

He also pointed out the financial plight of many fleets has been aggravated by an abundance of equipment on the market. Traditionally, companies pay in the range of (U.S.) $75,000 to $80,000 for a Class 1 tractor, depreciating this asset over five years, leaving an estimated $40,000 in value that could be realized when the company traded the tractor in order to update their fleet. Today, however, the surplus in equipment means such a tractor will likely fetch $20,000, and if a company has not been taking this into account on their financial statements they could face serious financial hurdles to mitigate when it’s time to renew the fleet, Mr. Schneider cautioned.

Another trend, possibly one of the greatest opportunities and challenges, he referred to, is globalization. “One of the hottest economies today is China,” he said, adding: “where you have a real challenge with ground transportation and add to that the ports and the complexity of marine transportation...you have 25 times the complexity of moving a shipment in good condition and on time.”

Outsourcing to third parties will continue to grow, he forecast, as it enables companies to focus on practices and processes core to their business and leverage the expertise of third party providers and their information infrastructure to reduce their costs and heighten efficiencies.

FedEx Canada’s Mr. Binks echoed those sentiments. “The key is seamless communications between different trading partners and integrating multiple and diverse trading partners through Electronic Date Interchange (EDI). It is not only sometimes painful. It involves a lot of cost, and with increasing frequency a lot of companies are turning to those organizations who have already built those information houses and trading houses and share information and expertise, resulting in reduced costs.”

This may involve something as simple as an alert message to a supply chain that signals something has been picked up or delivered, or a customized event-management notification that a particular delivery has been cleared at Customs.

FedEx has not, however, integrated all of its operating companies, Mr. Binks noted, as its management believes each operation should be run differently. “The way you run an LTL and an airline is different,” he said, adding that FedEx seamlessly integrates the information flow between its operations.

After conducting research about market trends, Mr. Binks stated he found that “…what came out is the Canadian trends are very similar to those trends we are seeing around the world.” He concurred with the vision of globalization in logistics and transportation that Mr. Schneider presented. “To participate in the global economy is nearly irresistible,” he said, “but there are risks and challenges associated with going global.”

As a market that is an estimated 61 times greater than the Canadian domestic market with the potential to duplicate a local success story and accelerate growth, create new efficiencies and bolster profit margins, globalization is critical to a growing number of Canadian companies, he stated.

He referred, however, to a daunting array of business decisions that come to the fore when businesses consider global sourcing. Government charges, transportation charges, insurance, taxes, fuel surcharges, new security procedures and Customs regulations, duties and trade barriers. Even after an organization has “understood business globally and all the different regulations and trade barriers, and who they must compete with, just when they think have it figured out, it can change overnight,” Mr. Binks cautioned.
He also alluded to the problems that may arise when companies conduct global trade and business with multiple modes of transportation and use different carriers as this heightens the risk and complexity of shipments as well as often diminishing the visibility of the shipment in the supply chain.

Not surprisingly, he added, collaborative commerce is another trend that is accelerating efficient global trade with information being transmitted simultaneously to multiple layers of the supply chain.

A global presence and efficient integration have also been vital to Schenker’s leveraged growth strategy. To achieve its strong and sustained top-line growth the company’s senior management charted a course of departure from one of the mainstays of its business practice. Traditionally, Schenker Canada had operated in a decentralized manner, in tandem with a similar approach applied by Schenker’s broad base of operations in some 1,100 locations worldwide. This decentralized practice permeated Schenker’s Canadian operations on national, regional and local levels.

“We really needed the power of one integrated organization to continue our path of success,” Mr. Murmann noted. “Therefore, Schenker Canada, along with our other companies in our network, underwent a transformation that has made us much more integrated and a much more successful global player. And, in the process, we became much stronger on an individual basis.”

Since recasting its way of conducting business, Schenker Canada has increased its sales by 15 percent annually and tripled its bottom line during the past five years. “We have introduced many new products and services that integrate our overall service and offer more efficiency. We have implemented new information and automation systems that have raised our quality to standards that are much higher than what we had thought were possible,” Mr. Murmann reflected.

When singling out the most important elements that were leveraged for Schenker’s growth, he referred to five key principles as instrumental in their deployment at Schenker Canada in guiding the company’s successful transformation. “These principles involve new ways of looking at things,” Mr. Murmann explained. “Essentially, they involve a new way of thinking.”

The first principle involved a new balance in terms of thinking on local and global levels. “We learned to think globally but act locally,” he said. The company continued to focus on local Canadian markets but the decentralization that once had permeated the regional and branch offices was diminished as “…we also had to be sure to be aligned with our corporate objectives to deal effectively with our global customers and suppliers.

Specifically, it was imperative for us that our local people develop local relationships with our preferred global suppliers instead of making one-off deals with the most favored provider.” While local providers afforded short-term benefit, often identifying cost savings, this approach would have undermined the company’s profitability on a global level and diminished the purchasing power based on its global ties

“Our key customers are much happier with us because we can deliver value that is far greater and at a lower cost than previously,” he said.

The second principle that Mr. Murmann presented is the emphasis on delivering virtually perfect service levels. In order to deal with vendors more effectively and mitigate any service problems in a highly proactive manner, Schenker developed rigorous quality systems to manage not only its vendors, but also its global network of offices and its operations in Canada.

Rewarding people and recognizing excellence in performance is the third critical principle that Mr. Murmann highlighted. “This principle is one of the main reasons why the turnover among our key staff members and management is among the lowest in the industry,” he said.

The forth guiding principle involves overcoming obstacles. “We have created a culture that encourages people to proactively deal with obstacles. This principle has resulted in a significant reduction in our unresolved issues that we deal with on a corporate level.”

The fifth principle pertains to the company’s customers. “During the transformation we learned it is very important to be much more selective with the customers we do business with,” he said, adding, this is still “a work in progress.” This approach has proven to be vital to Schenker’s business. Mr. Murmann referred, for example, to the company’s decision to divest itself of all public warehousing accounts in the past that were not connected to its transportation business or lacked the potential to become sophisticated contract logistics accounts. “Now this unit has evolved from being the weakest performer in our organization to be one of the strongest.”

These principles were carefully honed during the past five years at Schenker, and involved a series of strategic steps, and the lessons derived from trial and error. “We will never again approach business in the same way here in Canada,” Mr. Murmann concluded. “We have new eyes and a new sensitivity about what works, and what does not.”