March 2004 Transportation Roundtable By David A. Fox
Tennessee is blessed with a vibrant transportation and logistics industry,
thanks to its central location, the routing of interstates and the presence
of important inland waterways. Business Tennessee brought together some of
the leading experts in the field to discover what the future holds for those
in the industry and how that future
will affect customers.
We found serious worries about new
federal hours of service regulations that took effect in January. These
regulations reduce many truck driver’s driving time by an hour a day and
require drivers to count as hours worked the time spent refueling and on
loading docks.
More salutary—even if disruptive—effects on transportation and logistics are
seen in
the emergence of the giant manufacturing capacity of China. And post-9/11
security concerns are exerting new pressures, some
of which are being handled nicely by state-of-the-art technology. These
topics and more
are fodder for our roundtable members,
who include:
*Dan Martin, senior vice president of sales and customer service for Ingram
Barge Co., a Nashville-based operator of more than 4,000 barges and towboats
*Lloyd Rinehart, director of the Ph.D. program in logistics at the
University of Tennessee, Knoxville
*Wayne Spain, chief operating officer of Averitt Express, a Cookeville-based
freight transporter with 80 service centers across the Southeast, Canada and
Mexico
*Alex Vergos, senior technical advisor for FedEx Services, responsible for
implementing the IT systems, hardware and software that support package
sorting at the Memphis
company’s hubs
*Bob Whaley, senior vice president of
distribution, transportation and logistics for Goody¹s Family Clothing, a
335-store apparel retailer based in Knoxville
The five participated in a late January telephone conference call with
Business Tennessee Editor David A. Fox. The edited transcript follows.
Business Tennessee: Bob, why don’t you start by sharing your thoughts on
what the new hours of service regulations mean to your company? Bob Whaley: Sure. Without a doubt, we¹re going to be incurring somewhere
between ten to fifteen percent in additional charges. These [additional]
charges are primarily not going to come from inbound freight because a
tremendous amount of ours is truckload. We’re a drop and hook
operation—drivers drop off trailers that Goody’s unloads—so we don’t
anticipate any additional costs from that standpoint. However, we do feel
like there could be costs incurred at the shipper end through delays in
loading these trailers. We deliver all of our stores through a third party
that we have contracted out; they’re not trailer loads or drop and hooks,
they’re milk runs. And in order to get those trucks back, rather than
increasing the fleet, we’ve had to increase drivers. We’ve put a lot of
teams on these trucks, so we can get these trucks back without violating the
hours of service. So it’s going to cost that much more to deliver to the
same number of stores.
BTN: Wayne, how will this affect Averitt’s driver productivity and costs? Wayne Spain: It’s probably too early to tell for us. Many of our runs are
mostly there-and-back type runs. It’s only in the milk runs, in the long
haul, over the roads that are affected by this. The dedicated milk runs have
definitely been affected, but we have not seen very much of a detrimental
impact on our particular situation as of yet. Driver wait times are
certainly a topic of discussion for us. But it really opens up a dialogue
between us and the customer on how can we do this more
efficiently. The drop and hook trailer
situation is one-way; and then we’ve seen customers change their operation
in order to not get into the hours of service. We’ve seen many carriers
talking about raising their rates, raising their stop charges—those type
things—but we haven’t done that yet.
BTN: Lloyd, you talk with people in the industry all over the country. What
other impacts are you seeing from the hours of service change? Lloyd Rinehart: All these things are going to affect industries differently.
Take the automotive industry as an example: you know the impact of loading
and unloading isn’t going to have much of an effect there because the people
in the shipper companies historically have done the loading and unloading.
But if we look at the grocery industry, that’s a very different
circumstance. In the grocery industry, unloading responsibilities were the
responsibility of the carrier, and in some of those deliveries, it can take
hours to unload a trailer. Consequently, I think the food industry may try
to change some of the technologies that they use to minimize some of those
loading and unloading times. But if you change that technology, there is
going to be a fixed cost associated with that. Then there are going to be
people who require slip sheets (thick sheets of plastic that can take the
place of wooden pallets) as a mechanism to speed up the process, but that
also requires new types of slip forks, and that type of thing. And when you
go that route, are our companies, which are coming out of what I’ll loosely
term a recession, going to be in a position to make those types of
investments?
BTN: What happens if companies now begin rebuilding their inventories to
keep up with an expanding economy just as the new limits on drivers’ service
time have kicked in? Spain: We have seen a definite up-tick in business in the truckload sector
that’s been going on since probably October. We’re in the process of putting
on additional equipment and hiring drivers. We’re expanding our capacity. Whaley: I’d like to ask Wayne a question, if I could. A lot of the things
that I’m reading and hearing suggest the LTL (less than truck load) carriers
may get an advantage with these new hours of
service because you’ve got a longer drive time involved. Is that right? Spain: I would agree that the possibility is there when you go from ten
hours to eleven hours, but it’s probably a little early in the game right
now to know that that is for sure.
BTN: With so much of the manufacturing sector using just-in-time systems
that permit smaller inventories on hand, how does that fit into these
restrictions? Alex Vergos: What we’re finding is that customers are now looking to us for
some options as to how to manage that just-in-time arrival and control of
items from multi-origins. We have responded with a product called InSight
that allows them to see their entire shipping view across FedEx Ground and
FedEx Express. They can take items from multiple origins, scheduled into one
area, and they can manage, trace and view their inbounds and outbounds using
the InSight product. Now, you drop in your account number and you see a view
of everything that is coming and going.
BTN: How much is this dependent upon wireless technologies? Vergos: Actually, all of our FedEx tracking. We use it for our ring
scanners, in our sort and our ramp and our hub operations. We use a ring
scanner; therefore the employee is not tethered to any electronic device.
They’ve got the device on their wrist that allows InSight to display if your
package has gone through the hub. If your package is held for some
reason—say, inclement weather—the scan that came from that wireless device
tells us about it.
BTN: Continuing a bit more on the wireless side, which technologies are you
finding most useful right now when it comes to tracking packages? Vergos: 802.11 (an industry standard for wireless local-area networks) is
used right now in our ramps and hubs. Actually, every aircraft when it parks
in a gate gets an IP address. Maintenance talks to the airplane through that
802.11 link. We use that same 802.11 network to dispatch off-load employees
to unload the aircraft. Bluetooth (technology designed for communications
between small portable devices) is not so heavily used in those type
locations; however we do have Bluetooth rolling toward our PowerPad product,
which is going to be distributed to 40,000 express couriers. It’s in
beta-testing right now. Bluetooth technology allows that PowerPad to talk to
the van, to unlock the van, to transmit scans when it approaches the van, so
the courier is no longer dependent on scanning at the customer’s door or
location and then dumping the scans. It’s an automatic thing using
Bluetooth. The PowerPad basically puts the customer’s touch point right
there with the courier, which puts us in near real-time scanning. So the
FedEx customer that uses InSight knows pretty nearly where the package is.
BTN: Let’s segue into security issues post-9/11 and hear what technologies
are helping monitor activities on the transportation channels. Dan, what are
you seeing? Dan Martin: First of all, we have satellite communications on board all of
our towboats that operate on the inland river system, and we’ve had them for
several years. That’s been very effective in the post-9/11 era where
security has become a bigger issue. [Homeland Security officials] want to
track what they refer to as “certain dangerous cargoes,” cargoes in barges
that might be able to be used as explosives and things of that nature. We
have a new security plan requirement, whereby we have to submit a plan to
the Coast Guard, and implement training for our crew members on boats in how
to be aware and understand what the risks are and what to do in the event of
a situation. We have been able to utilize some of the satellite
communications and the way we communicate through the Internet to our
customers,
utilizing that platform to communicate the whereabouts of our barges that
have
cargoes that they might have interest in tracking.
BTN: I would imagine that post-9/11 issues have had a big impact on
liability insurance costs and legal costs. Is that the case? Martin: We’ve certainly seen an up-tick on insurance rates, post-9/11—very
significant, double-digit increases in some cases. Spain: We also have seen an increase in insurance premiums. All the carriers
in our business are facing those costs. Not to mention, when we talk about
insurance costs and 9/11, I know we’re not talking about health care, but
our health care costs are also going through the roof as well.
BTN: Lloyd, earlier Wayne mentioned a better dialogue emerging between
shippers and customers as a result of the new hours of service regulations.
More broadly, in terms of supply chain management, do you see any trends in
the amount of cooperation between parties? Rinehart: Well, you know supply chain management has been an industry
buzzword now for several years and yet, you’re correct, one of the
underlying premises of supply chain management is the importance and
inclusion of collaboration or cooperation between parties. And you see
sporadic examples of it, but my take is that there is a lot more talk about
it than there is reality. People talk relationships and cooperation until
the money really gets involved. Then when you start talking in financial
terms, suddenly the bottom line is the final measure. So, I think it’s
important that firms look at how to achieve that bottom line, or at least
components of that bottom line, while recognizing that there
is a bigger piece of the pie out there. This bigger piece is not just total
cost to each individual organization, but also the total supply chain cost
that helps to create the best economic output for our economy as a whole.
That’s a challenge.
BTN: A major trend facing all businesses is the growing manufacturing
capacity of China. What effect is that having in the transportation
business? Martin: It’s interesting. As an example, we see that China has got somewhat
of an insatiable appetite for iron ore and that is taking up much of the
blue water capacity, which is causing ocean shipping rates to skyrocket here
recently. But the silver lining for the barging industry is that since ocean freight is being taken
out of circulation, the U.S. coal industry is able to export coal through
the U.S. gulf more effectively because the differential between the ocean
freight out of South America into places like Europe is more beneficial. So
there’s a positive to what we’re seeing there, on the inland barging side.
We’re able to move export coal, which had pretty much all but dried up until
this year. Spain: There’s an uncertainty in the freight industry. The tonnage that was
once coming from the states is now coming from abroad. And with the
exception of a few industries, there’s not many people who are building
plants and manufacturing in our part of the country anymore. So it’s caused
us to really shift our operating models. The old LTL model is under intense
pressure, and we’re having to go to the ports with de-consolidation
services, consolidation services. It’s changed our way of looking at our
industry, quite frankly. You’re going to see LTL carriers getting more into
the warehousing business, more into the inbound, import, export business,
versus the traditional LTL shipments from one city to the other. We’re just
seeing those industries leave and go abroad. That means that tonnage is
coming out of our network. We’re becoming more of a consumer distribution
model
versus the old traditional LTL model. Vergos: At FedEx, we have really seen an increase in our flights to and from
Asia, and that goes back to the just-in-time shipping business. We are
really seeing that a lot of product is coming out. We are focusing
additional lift and additional aircraft in that area, which has been a very
positive thing for us. Whaley: It’s a somewhat scary thing to realize what’s probably going to
happen in the next few years, particularly in the apparel sector of the
economy. You’re seeing less and less manufacturing of apparel in this
country, and now that China has joined the World Trade Organization,
quotas are going to be done away with. This means there’s going to be
continued deflation of prices in the apparel business, and there’s going to
be more and more going to that part of the world. China is the largest
populated country in the world. They have an unlimited labor supply. So, I
see much more going to that sector of the world, and much more tonnage
coming in, and it’s not just the apparel. We’re seeing the same thing happen
in electronics, in the computer industry. One of the things that we did not
think would happen as little as five years ago is the technological ability
of the United States being transferred to Asia. But you see that happening,
too.
BTN: Lloyd, how big a topic is this in the Ph.D. logistics program you run? Rinehart: It’s a very big topic. In fact, I’m finding more and more of our
Ph.D. applicants are interested in linking logistics and supply chain
studies with global and international studies. As well as at our
undergraduate and master’s levels, we’re seeing more of an international
type orientation toward the educational experience. For example, in the old
days, the approach to teaching international subjects was to have a course
in international marketing, international logistics or whatever. Now we’re
integrating those as applications throughout the curriculum.
BTN: Dan, you were speaking about some of the effects of the Chinese trade
and the enhanced demand for inland waterways transportation. In what kind of
shape is
the waterways system to handle greater
volumes? Martin: We have a very aging infrastructure with our locks and dams that are
on the inland river system. Since 1986,
the barge companies have contributed approximately $1.6 billion to the
Inland Waterways Trust Fund, and we really haven’t seen that come back in
the full investment that we were promised. Under the Water Resources
Development Act, the funds in the trust fund were meant to pay for one-half
of the cost of new construction and major rehabilitation of the locks and
dams. These contributions are generated by a 20-cent tax on diesel consumed
by our towboats, and it’s deposited in this trust fund. The other one-half
of the cost is to be paid from the general revenues. Both the Clinton and
Bush administrations have not been funding the projects of building new
locks and dams. So this money in the trust fund, a little bit over $400
million now, is not being utilized. To give you a case in point, we have a
lock structure near Huntington, W.Va., called the Greenup Locks and Dam,
which was supposed to go down for a 19-day closure. Well, they found once
they got the chamber de-watered that they needed to do major rehabilitation
and they took this lock structure out for
56 days. We had towboats, loads of coal and whatnot, sitting for two to
three
days, each way, every day. The industry took a huge financial hit. More
locally,
the Chickamauga Lock just beyond Chattanooga is very old and could see a
failure at some point in the future, which basically would cut off all river
trans
portation beyond Chattanooga, to say, Knoxville. So there’s a real concern,
and we’re trying to make everybody in Washington aware that we need to have
these projects funded.
BTN: Speaking of Washington policies, Dan, what do you think of the return
of the investment tax credit? Martin: Through the investment tax credits that were available in the late
1970s, barges were being built for the wrong reasons and weren’t needed. So,
the industry became overbuilt, and when barges are built, they last for 25
years. So we had an oversupply of equipment for quite a long time. As part
of Bush trying to jumpstart the economy a couple of years ago, he
re-introduced a form of the investment tax credit that encouraged the
building of things like this. We are very much against that kind of tax
policy.
BTN: Very interesting issues. Thanks for participating.
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