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Four Reasons Why 3PL Brokerage Market Continues to Grow

3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Rail, Trucking

Four Reasons Why 3PL Brokerage Market Continues to Grow

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According to the most recent market results and trends report from Armstrong & Associates, 2016 domestic transportation management increased 5.3 percent in gross and 7.0 percent in net revenues over 2015 and if the first half of 2017 is any indication, 2017 will be much better than 2016.

The beneficiaries of the growth has not been equal among all providers, as the mega logistics providers are making their impact. Mergers and acquisitions activity that occurred over the past two years and the continued inflow of capital, along with the technology advances is making it more and more difficult for the little guys to survive.

While not all market verticals are growing in their need for 3PL services, the overall reasons for growth fall into four buckets: a better economy; managed transportation services market growth; planning for future capacity concerns; and mega logistics providers leading the conversations.

The most obvious reason for growth is the economy is performing better in 2017 versus 2016. As a result, truck tonnage shipped and railroad traffic data are above 2016. These trends are expected to continue, with the Industrial Production Index (IP) showing more life in 2017 than 2016.

 

 

 

 

 

 

There has been some margin pressure over 2017 because capacity has been fairly loose and relatively balanced through the first six months. Contract rates were under pressure in the first quarter, but with the rise in the spot rate market our expectation is to see increases in the contract rate when the 2018 RFP season kicks into full gear in the latter part of 2017.

To further back the strength being exhibited in the freight market, a recent article by FTR Associates reported “the first quarter of 2017 registered the second strongest freight growth of the current recovery” and went on to say “the balance of 2017 is expected to grow more modestly, but continue to be positive through 2018”.

Technology is making its impact and transforming the logistics market at breakneck speeds, which is putting a megaphone on the sales pitch of logistics service providers on their managed transportation services offering.

The largest of shippers were on the front end of taking advantage of technology to drive a competitive advantage, but the message is now being heard and accepted by shippers of all sizes.

It has been interesting to watch technology and logistics service providers market blend to an extent, as logistics service providers (LSPs) have taken the transportation management system (TMS) used in their brokerage business and wrapping it into a full outsourced managed transportation services model for the benefit of all shippers. The blending of the market is validated in the latest Gartner Magic Quadrant ranks that includes the largest TMS software providers: MercuryGate, Oracle, etc., but also includes LSPs: CH Robinson’s TMC division, TransPlace, and LeanLogistics within their evaluation of the TMS market. These LSPs listed feel they are better positioned with a home grown system. Our position has always been that proprietary systems are less robust than those coming from the TMS software companies that have 100 percent of their focus on building the best software package in the market. The proprietary systems also lock their shippers in and provide less flexibility for strategic changes.

No matter your perspective, today’s technology and the market knowledge top 3PL’s offer make managed transportation a compelling service that offers a quick return on investment and high ROI by saving shippers capital that would have otherwise been needed to bring today’s powerful TMS cloud technology online; bringing immediate freight savings; offering operational efficiencies; and delivering on improved performance. The data captured within the TMS also allows for big data analysis to further improve a shipper’s supply chain cost structure and performance.

Logistics professionals are preparing their business for what appears to be a tighter capacity market and bringing in brokers and intermodal providers for additional capacity. Freight is a cyclical market and shippers have had a long run of having the upper hand in negotiations. Various market reports indicate the carrier market will have its turn shortly and the more seasoned shippers are making preparations now.

The mega logistics providers are driving the narrative and market share, as they spread further into the market with a compelling offer for shippers. At the same time, mega logistics providers are outflanking the small to medium logistics providers.

The investment in technology for high-end functionality is tough for the smaller LSP’s to keep pace.

The combination of speed needed to service today’s sophisticated market requirements and technology within the pricing landscape has given complete transparency to available capacity. The combination puts the the small to medium players at a disadvantage because they cannot act fast enough and cannot put the higher margins they have previously enjoyed. The result is the logistics buy-sell transaction has moved to a whole other level, which puts pressure on the smaller LSP’s working on lower margins and higher volumes.

The mega providers offer additional protection for shippers. Examples include: a more robust bond and $1.0 million shipper interest liability policies versus a contingent cargo policy.

InTek knows a bit about the mega logistics providers having competed against them since 2003. Now as an agent of SunteckTTS, a top ten logistics provider, gives InTek a unique perspective. The services and backing InTek now can offer shippers is light years ahead of where we were as a medium sized broker, which is demonstrated in our 40 percent increase over prior year.

Rick LaGore is CEO of InTek Freight & Logistics.

Services involved providing logistics for shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Trucking

“Product Freight” is Different Than “People Freight”

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If your email box is anything like mine it is getting populated with three to five emails a week from various freight companies telling us how easy it would be to sign up on their website to begin receiving competitive freight quotes at a press of a button, while also making track and trace a breeze.

From my perspective, these marketing emails hurt our industry by perpetuating the thinking that freight is a commodity buy. It gives the impression that “product freight” is exactly like “people freight,” so come along and book your next shipment with Freightpedia.com or Freightocity. At one point in my career, I even had a boss and well known advocate for the logistics industry tell me we should sell by explaining to potential clients that we are travel agents for freight.

Over-the-road trucking, intermodal, LTL, etc. is significantly different than buying an airline ticket. I’m not here to take anything away from airlines. Airlines do an amazing job providing a high level of value and service for their customers, but to compare “people freight” to “product freight” misses the mark.

To illustrate my point, I’ll walk you through three variables: service provider count, total number of origin and destination combinations and routings for both the airline and trucking industries.

To start, let us take a deeper dive starting with the airline business. Remember, I’m not here to take anything away from the airlines, but to look at what it means to provide a web portal to price and service. To continue from that perspective, I took a look on one of the travel websites to see what the airlines offered in the CHI to LA and NY to LA lanes. What I found were seven airlines delivering 80 flights of people throughout any given day. In the search, I also found less than 75 major commercial airline hubs serving the United States.

Moving “people freight” from point A to point B is complicated and sophisticated, but “people freight” drives to the origin location and the flight delivers the “people freight” to a destination location in a city. If “people freight” has an issue in being ready, then the delivery to the destination never occurs for them, as the flight does not wait or change its schedule because the “people freight” still had time to pick and pack its suitcase or had problems with traffic. The flight will stay to its routing whether the “people freight” arrives and unless the freight has travel insurance has to pay no matter if on the flight or not.

Now let us talk a bit about “product freight.” There are literally millions of origin/destination combinations, as the truck has to pick-up and deliver its freight to a unique address. Just think of all the businesses a freight provider has to service in a major city, let alone in small to medium cities. Let’s just say it is more than one. Even in the situations where there is a consolidation or pool point, the freight is still having to be picked up at origin and delivered to a destination. The number of combinations grow exponentially when adding in freight mode and carrier mix available. Just think, there are 1.2 million trucking companies that operate in the United States. Roughly 97 percent of these companies operate with twenty or fewer, while 90 percent operate six or fewer trucks.

The latter two facts take the combinations to a level of difficulty that is mind numbing when thinking how to tap into each of the providers electronically over a website. Add in the level of IT sophistication within the smaller carriers takes the level of difficulty up even further. Today, there is no economically feasible way to link into all 1.2 million carriers themselves, let alone find their capacity for a given day on the millions of O/D pairs.

The “billions and billions” of combinations now in the forefront of our minds takes us to the pick-up, transit and delivery of “product freight.” On the pick-up and delivery, the freight industry is already assuming a two-hour window of free time before the detention charges begin to start. Again, imagine an airline pilot waiting for a passenger to pick-and-pack their clothes into the suitcase and then arrive two hours late and what it would do to the airline hub and spoke networks. No wonder “truck pilots” get a bit wound up when they have to wait.

I think you get my point of complexity is exponentially more difficult to run through a web portal for freight than an airline ticket and to market that a single portal exists to tap into all the combinations is, well, not serving the shipping community well.

Rick LaGore is CEO of InTek Freight & Logistics.

Spot versus contract rates for shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Trucking

Transportation Contract Versus Spot Pricing: Which Wins?

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A recent RFP assignment once again brought to focus the topic of spot rates versus contract rates and what it means to align with freight providers on a contractual basis for better pricing, service and less risk.

This is important for shippers to know, as we often find many believe that playing the spot rate market drives greater savings, which is just not the case over a calendar year. Playing the spot market has similar characteristics to gambling, with tremendous downside risk; the house (meaning the market) has the upper hand; everyone talks about the wins, yet very little is said on losses.

Risk vs reward in the spot freight market

So, if your business is a spot market believer, please hear us out. This is based on facts that came out of an annual bid just performed for a shipper that we recently on-boarded within our Managed TM Service group. For this particular shipper, double digit savings were attained within its line haul rates with total annualized dollar impact to the bottom line being over $1.0 million, plus from all accounts hours of phone calls, emails and service failures.

Why do spot rates not consistently produce the savings? To start, spot rates are based on how much buyers are willing to pay and how much sellers are willing to accept at that exact moment. Now there are times the buyer wins, but within these one-time spot bid relationships there is tremendous risks on both sides and the strongest carriers will inflate their standard margins on spot business to protect from the unknowns and potential downside of hitting docks the business typically do not touch.

So, even if there is a win, the added margin could be taken out of the equation in a contractual basis. We are not saying there are not wins in the spot market, but it takes a great deal of analysis and understanding of market conditions to identify trends for particular lanes that produce the wins and is why we publish the InTek Spot rate index blog every week and have a web page dedicated to weekly intermodal spot rates.

Freight savings

Think of spot rates in terms of weekly grocery purchases. A consumer can either pay full price at the time they are out of an item or they can save 25 percent to 40 percent on their entire grocery bill if the majority of purchases are made when on sale, while sprinkling in some of those immediate (spot) needs.

What sacrifices do buyers make when playing the spot market?

Over a twelve month period they pay a higher price than contracted rates in the same lane. They experience capacity constraints driven by lack of a long term service agreement. Many of the strongest freight companies shy away from the spot market because of the risks of hitting unknown docks. Hidden operational execution costs of time and money are incurred when having to spot a lane over three to five carriers for every shipment. They enter inherently risky relationships, as service agreements are typically not well managed on insurance, safety and financial fronts. Finance cannot plan based on the variability within the budgets. Unknown market conditions can bring the organization significant cost over-runs. Inconsistent service levels are often experienced. Spot relationships lack accountability, as the carriers used within lane are fluid. There is a lack of an ability to manage requirements and measure performance against KPI’s to drive improvement.

Fixed contract rates open up negotiations on fuel and accessorials that are otherwise fixed in the spot market.

Don’t get me wrong, there is a place for spot rates for price reasons. Also, shippers are not the only group using spot versus contract. Many brokers live on the spot market all day, every day, which is why many shippers find inconsistent service from some of the freight brokers they utilize to fulfill their capacity needs.

Win-Win Freight And Logistics Relationships

To sum it up, the hidden costs in time, money and risky relationships inherent to the spot rate process offset many opportunities for savings, so instead of gambling on the spot market, shippers should consider making an investment in managed TM solutions and contracted carriers, as the shipper InTek recently contracted with discovered.

Rick LaGore is CEO of InTek Freight and Logistics.

Using intermodal for shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Rail, Trucking

Tips & Tricks for Intermodal Success

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For those sitting on the intermodal sidelines, there is no better time than the present to bring intermodal into your transportation departments with the following issues on the docket:

Tightening Driver Market
Government Regulations
Electronic Logs
Highway Infrastructure Congestion and Deterioration
Tightening Access to Capital
Rising Fuel
Managing Budgets

With rates holding steady, capacity well balanced, and service as good as it ever has been ensures the only variables to manage and evaluate is the ability to manage the new mode within a shipper’s organization and whether the mode is a good fit for the shipper and its customers.

With that said, below is an outline of potential pitfalls and items shippers need to familiarize themselves with for a successful implementation of intermodal into its freight strategy:

The number one and two issues for intermodal shippers revolve around weight and blocking and bracing. These two items alone are what cause shippers to abandon their intermodal aspirations.

Weight
The intermodal container and chassis combination is 2,500 pounds heavier than an over-the-road trailer; therefore the maximum bill of lading weight is 42,500 pounds for intermodal versus 45,000 pounds for truckload. There are some options to load heavier, but as a general rule, the figure 42,500 is the guideline.

The additional intermodal weight topic to cover is the distribution of the load within an intermodal container. There are specific requirements as to the weight allowed and aligned on each axle. With that in mind, an intermodal shipment could be legal on gross weight, but illegal on the distribution of the weight.

Blocking and bracing
Loads can and will shift in transit, as they travel on the rails and experience what is known as harmonic vibration. The vibrations are not intense but are consistent, and will move a freight load vertically and laterally within the container if not blocked and braced. Many shippers are under the belief the task of blocking and bracing is time consuming and expensive, but the reality is many loads require a couple of 2×4’s and 16 penny nails. There are also a number of inexpensive products that both effective and quick to implement at the loading dock.

The issues of weight and blocking & bracing come together as a single problem when a load shifts in transit because it is not properly block and braced. In this instance, the intermodal load that is under on gross can become illegal as the weight shifts to a point where it is over on its axles. Without a doubt, this is the biggest frustration for shippers, not well versed in intermodal.

Terminal storage and equipment per diem
Terminal storage and equipment per diem comes into play when the intermodal container does not exit or is not returned to or from the ramp during the allotted free time. Just know these charges are not intended to be a revenue source, but a means to encourage equipment turns.

Power detention
Another fairly common accessorial charge a shipper can be assessed, but this too is not a revenue source, but a means to turn the drivers in and out of facilities.

Restricted versus prohibited commodity
A prohibited article is any substance that cannot be loaded onto a container under any circumstance. There are some prohibited commodities that will or will not be considered prohibited based on the owner of the container. Restricted commodities are acceptable to be loaded on a intermodal container, although with caveats and limits. The list of both prohibited and restricted can be confusing, so we recommend working closely with a reputable IMC to ensure your company’s commodities are appropriate for intermodal transport.

Liability limits
Maximum liability for cargo is $250,000, (or $100,000.00 for consumer electronics where the seal agreement terms and conditions are not met).

Pricing options
There are essentially three types of pricing options: guarantee capacity, spot rate and project rates. Guaranteed capacity rates are rates that will be consistent over the full year. The capacity is typically locked at a pre-determined level based on some type of rolling average. Shippers that are heavy outbound shippers in key retail markets, such as LA, will enjoy a consistent rate even during “peak season”. Financial people tend to enjoy a locked rate, so they can easily predicted their annual spend. A spot rate is whatever the market rate holds at that given time, within that given day. Spot rates can fluctuate within an hour based on capacity. Project rates are locked for the period of time a project is running.

Review transits and cut times
Intermodal transits are typically truck, plus a day, but two items should be reviewed before assuming such a transit: does the lane move every day and what is the time the intermodal container needs to make the ramp to be loaded and moving to make the expected transit.

Responsibility of the integrity of the load
Intermodal loads are touched by three three different parties: origin dray company; the railroad and the destination dray company. With that said, intermodal shippers are the only consistent party in the transaction, which make the shipper fully responsible for the integrity and safety of the load. Unlike truckload, there will be no IMC that will accept the safety and integrity of the load in a written or oral agreement.

Intermodal equipment types
Fifty-three foot domestic COFC (container on flat car) are utilized across North America. ISO Boxes (20′ / 40′ / 45′) are used primarily for international import / export commerce, but present opportunities for shippers having lanes that steamship lines want to reposition in their network. These boxes are also great for shippers that have freight that weigh out before cubing out.

Fifty-three foot COFC and TOFC (trailer on flat car) reefers are limited, but capacity continues to expand. TOFC is a better option for heavier shipments, as these are truckload trailers.

Rick LaGore is CEO if InTek Freight and Logistics.

Freight brokers use technology to move shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily

Technology and Capital Changing 3PL Landscape for the Better

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The days of freight brokers operating with three phones and their hair on fire desperately looking for a carrier back haul is in the history books. Technology and capital is the reason for the change and, might I add, a very positive change for shippers in terms of the quality of service, transparency, multitude of logistics options available, competitive pricing, data mining and network analysis, and professionalism.

Today’s cloud-based transportation management systems tie users with real-time connections into their carrier base; multiple load boards when the core carriers cannot cover; carrier safety ratings; shippers’ orders; dock requirements; rate structures; train schedules for intermodal, which creates a network transparency where the top freight brokers have the ability to truly manage supply chains versus chasing trucks and providing tracking and tracing details.

With the technology and connections historical data comes to life in supply chain models and RFP analytical tools that bring clarity through real data to drive streamlined supply chain networks for incredible improvement in key performance indicators and cost structure for today’s shippers.

The infusion of technology and capital into logistics has changed the make-up of the industry forever. The addition of capital has jumped started technology companies with more innovation both now and into the very near future that were not even in the thoughts and minds of logistics professionals, along with producing a flurry of M&A activity that is driving exponential growth for the largest players. These changes are driving out the small to medium size players because they do not have the resources to keep pace, particularly as the transparency in the freight brokerage transactions has decreased freight brokerage margins and made it a volume play.

While many of the small to medium size stand alone brokers can look well from the surface, the climate change occurring in the industry brings to mind comparing them to glaciers with the majority of the activity within the company below the surface and their model slowly disappearing from the landscape.

The small to medium size brokers will say they offer a more boutique service that the larger multi-billion and multi-national corporate operators cannot offer, but that is not entirely true in today’s market. Add to the change in the market itself, the freight agent model has also evolved to fill the niche the small to medium sized logistics providers used to flourish within.

In the past, freight agencies were typically entrepreneurial people with the intent of starting a small freight brokerage operation and staying relatively small focused strictly on truckload brokerage. They chose the agency model because they could not or did not want to go it alone in the development of their freight brokerage business and did not want the hassles of all the back office paperwork and legal responsibilities. Today’s freight agencies are still operated by entrepreneurial people, but many with the intent of scaling up in office size, operating multiple offices under their independent ownership structure, placing team members onsite to support their largest customers and offering the full suite of logistics services. In other words, today’s freight agent is fills the boutique niche, but with significantly more resources for their clients and less risk.

As a quick example, we will walk through the situation when a broker has an issue where its primary carriers drops off a load and the broker needs to go out to the market to find another carrier to cover what would otherwise be a service failure. The larger carriers hit their database and/or posts the load. Within minutes multiple carriers come in with a rate and capacity. The larger broker asks if they are part of their network and nine times out of 10 the carrier says yes. The broker asks for the carrier’s MC number to validate they are indeed already within the system and they are legal, under contract and then checks to see the carrier’s past history on service KPI’s. The load is then booked.

The smaller carrier starts the process of recover in the same manner, but nine times out of 10 that carrier is not within their database and now they have to go through the carrier vetting process, which if done properly, will take a minimum of an hour—many times longer—and the broker does not have actual service performance KPI’s from prior activity because this is the first time the broker used this carrier. The two concerns for a shipper’s perspective on this scenario when comparing the two options are: shippers typically do not have the extra hour to wait and the quality of service is questionable since the broker does not have a history with the new carrier. The new, larger agencies also offers a full menu of logistics services and talent versus just truckload brokerage services.

The long and short of it is the logistics industry continues to evolve at breakneck speeds through technology and capital in ways that are not always easy to be seen. The non-asset model will continue the M&A roll-up, either through the big getting bigger or through the smaller brokers deciding to roll up under an agency model to compete on a larger scale or for those shippers looking for a higher level of service.

Rick LaGore is CEO if InTek Freight and Logistics.

Domestic intermodal often carries shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Logistics, Global Trade Daily, Rail, Trucking

Shippers: Use Asset and Non-Asset IMCs

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When it comes to domestic intermodal, asset vs. non-asset is defined more in the eye of the beholder’s box ownership strategy.

The BNSF’s strategy is to not own boxes, which drives shippers to asset IMCs like JB Hunt, Schneider, Swift and private box owners for intermodal capacity within its network.

The Union Pacific, Norfolk South and CSX own the majority of 53-foot boxes riding on their rails. These railroads sell their capacity wholesale to non-asset IMCs that, in turn, re-sell that capacity and interface direct with the shippers for operational and reporting support.

This is not to say one strategy is better than the other. It is just saying there are two different strategies.

The different strategies do open up the opportunity to confuse some shippers into thinking the non-asset IMCs do not have the box assets required to operate their business, when in reality they have the full backing and support of UP / NS /CSX and by not including the non-asset IMCs is essentially cutting off 50 percent of the market capacity, while also missing out on some key ramps that could be helpful in their freight lanes.

To illustrate the point, the below chart outlines market share by 53′ intermodal box count.

 

 

 

 

 

 

 

 

The benefit the non-asset IMCs, like an InTek Freight & Logistics and other non-asset IMCs, have is they tap into almost 100 percent of the box market because they access the asset IMCs for the BNSF capacity and hold a direct relationship with the railroads for the UP / NS / CSX capacity. The point point is that the largest of shippers down to the smallest can draw upon 100 percent of the 53-foot domestic intermodal capacity for their customers’ benefit.

In addition, by utilizing both asset and non-asset IMCs bring a diversification strategy into a shipper’s logistics department by providing shippers access to all intermodal ramp cities, as not all railroads have similar ramp networks. A couple of examples would be the Union Pacific has a Salt Lake City ramp and BNSF does not, while the BNSF has a Phoenix ramp and the Union Pacific does not. This is just a couple of examples, but can make a big difference in dray miles making a route either competitive or non-competitive.
Diversifying risk off of a particular rail line during those times of maintenance, derailment, act of god issue, etc. that another rail line does not during the same time.

As a shipper’s strategy goes, in many cases it probably makes sense for the largest of shippers to have a direct relationship with an asset IMC, such as JBH, while also holding a relationship with a non-asset IMC. For small to medium shippers, it might work to utilize a non-asset IMC that taps into both the asset network running on the BNSF, while leveraging its direct relationships with UP/NS/CSX.

Rick Lagore is CEO if InTek Freight and Logistics.

Extra charges can accumulate on shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Rail, Trucking

Intermodal Shippers: How to Avoid Extra Charges

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Intermodal shippers often wonder what the difference is between demurrage, detention, per diem, and storage charges. The confusion of the terms brings on additional frustration and pain for shippers feel when the clock begins on the charges.

As the the charges accumulate, one often feels they are intended to be punitive in nature. The intent, however, is to encourage the users of the asset (container or land) to turn the asset as it was intended for a fair return for the owner. Therefore if the asset owner is not getting the turns needed, the charges begin to accumulate to adjust for the lost revenue on the asset.

In all cases, whether demurrage, detention, per diem, or storage, there is an allotted free time before the charges begin accumulating. These charges can and will vary by provider and facilities utilized in particular freight routing.

Demurrage
Demurrage is a charge assessed for cargo that is left at the terminal beyond the allotted free time. It is important to know that congestion at pick-up or delivery or the location being closed is not a free pass. The clock will continue ticking, so it is imperative to address demurrage quickly. Demurrage is billed at a daily rate, which often times escalates as the days increase. Last but not least, demurrage needs to be paid before a container can be pulled from the yard.

Detention
Detention is a charge made on trailers/containers held by or for a consignor/consignee for loading or unloading, forwarding directions or any other purpose. Typically, there are two hours of free time before detention becomes an issue. Detention is billed on an hourly basis and a negotiable charge at time of contract, not at time of invoicing.

Per Diem
A per diem charge is a fixed rate per day that a carrier charges against another carrier or customer for use of its containers, trailers or chassis. Per diem charges accumulate until the equipment is returned to the port or rail terminal.

Storage Charge
Storage charges are assigned to the shipper or consignee for holding containers or trailers at an intermodal terminal beyond the free time allotted to them.

Tips to Avoid Demurrage Charges
Know the rules, meaning know the number of free days allotted within the contract. Large shippers can typically negotiate extending the number of free days, so negotiate well.

Pre-clear the cargo by submitting the shipping documents as soon as possible. Align the business with multiple trucking options, so if one trucker falls off the load another one can be found quickly to recover and not incur charges.

Keep track of the containers on their arrival and departure. No one will care more about the freight than you will. Demurrage charges have no mercy and missing a detail on a spreadsheet is not an excuse.

Tips to Avoid Detention Charges
Schedule the dock, so the operations team is prepared to load / unload the day’s cargo. Detention is negotiable at the time of contract, so work the amount of free time required into the agreement. Carriers can better manage pricing and service knowing the wait and load times they can expect.

Dispatch the cargo well in advanced to give the trucking company plenty of time to work the shipment into their schedule.

Tips to Avoid Per Diem Charges
Like demurrage, keep track of the equipment once pulled from the yard and when they need to be returned. Manage the containers at the locations in a FIFO manner, so once emptied they can be returned quickly within the allotted free time.

Rick Lagore is CEO of InTek Freight and Logistics.

IMCs are an integral part of the process of moving intermodal shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Rail

The Secret Behind Asset-Based Intermodal Providers

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As we talk to shippers across North America on the merits of intermodal, we continue to hear “you are just another broker” that does not have assets.

Well, we’re here to shout from the rooftop that a true intermodal marketing company (IMC) is not “just another broker” moving another company’s assets, but an advocate for the Class I railroads through the utilization of the Class I’s assets.

The prior statement is contrary to the marketing materials coming from “asset intermodal service providers” (bi-modal intermodal providers). The reality is asset versus non-asset cannot be delineated in the same way as asset and non-asset truckload providers can be explained because there is no one intermodal company that owns all the assets in an intermodal move.

The bi-modals, meaning the JB Hunt’s of the market, own containers, chassis and some (not all) of their dray capacity. The bi-modals do not own the trains, rails, and intermodal ramps nor do they employ the railroad team.

On the other hand, railroads own 53-foot intermodal containers, rail infrastructure, intermodal ramps, systems, processes, and the intermodal teams.  The difference and confusion in the intermodal marketplace comes in the fact that Class Is do not sell direct to shippers, but through IMCs.

To add to the point on the term “assets,” in the intermodal space is the Class I Railroads own more 53-foot intermodal boxes than the largest bi-modal provider.

IMCs were created as a by-product of the railroads’ decision, during the development of the intermodal service, not to sell direct to the shippers market. Instead, railroads chose to sell wholesale to IMCs that would perform the sales and marketing for their intermodal service. Over time, IMCs evolved to provide not only sales, marketing and pricing, but also operational work needed by the shipper, including securing the container, dray capacity, routing, and track-and trace through delivery.

This process looks exactly like a brokered truckload move to shippers, which is where I believe the confusion between an IMC and broker started. IMCs work directly with the railroads and has the full faith and backing of the railroads’ resources, while a broker is working with IMCs.

IMCs also provide a layer of customer service support and reporting shippers are accustom to receiving from their other transportation mode purchases. They give shippers one-call access to all west and east coast intermodal origin and destination combinations, since there is no one railroad that covers all the North American intermodal ramps.

The railroad-IMC model is a great model, but some shippers have come to believe an IMC is “just a broker” without assets because the operational aspect of an IMC is very much like tendering a load like a truckload broker, while the reality is they are customer interface for the railroads.

IMCs can appear to be small, compared to the 800-pound gorillas in the intermodal space because of the marketing punch and the number of IMCs in existence. With that said, though, consider the resources behind the IMCs that sell the railroad’s container capacity. In our particular situation, R² Freight & Logistics is an agent of Sunteck-TTS, a $1.0-billion asset and non-asset logistics company which is tied for #7 on the listing of the Largest Domestic Freight Managers.

To sum up this blog, IMCs like, R² Freight & Logistics, stand toe-to-toe with the bi-modals by providing North American Class I Railroads asset boxes to the market. So, the market question is, is it more important to own the boxes, dray or ramp interchanges at origin and destination. Well, the Class I / IMC model is the only one that owns all three. The bi-modals only own boxes.

Rick LaGore is CEO of R² Freight & Logistics.

A four step process for the inbound management of shipments of export cargo and import cargo in international trade.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily, Trucking

Inbound Freight

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Inbound freight is typically the last frontier for many companies search for cost savings in their freight spend, as there is an abundance of complexities that are often outside the logistics and supply chain department’s control.

When talking about inbound freight management a term often used is freight term optimization (FTO), which is the process by which shippers strategically establish the most advantageous freight terms, while minimizing the total inbound landed cost. The optimal freight terms are influenced by a shipper’s ability to consolidate orders across days, shipments across vendors and customers, order level service requirements, and the shipper’s ability to plan and execute routing options like multi-stop LTL, static or dynamic pooling, zone skipping, and backhauls.

To correctly manage FTO, one needs to analyze a vendor inbound move or customer inbound move in the context of other relevant typical shipments, not just as stand-alone moves. This is difficult to do without the right tools and actual or achievable benchmark transportation rates.

Many shippers struggle because of the various inbound freight management difficulties, and thus, they pay a hidden freight cost; either by paying too much for goods that could have a lower landed cost if the inbound transportation move were controlled, or by charging too little for product that could be delivered less expensively than if a customer were to pick it up. Frankly, what is often called free freight on the inbound side is often the company’s most expense move.

In addition to cost savings a well laid out inbound freight management program also gives organizations visibility into their inbound product flow, better management of supplier compliance to PO’s and freight routings, improved timeliness of deliveries and service, optimization freight flows for reduced transportation costs, and connections all internal and external stakeholders.

With all the benefits and challenges, the remaining discussion is a quick read on the four-step process utilized by R² Freight & Logistics to help shippers get their arms around their inbound freight challenge and begin to unleash the value.

Step 1: Understand non-controlled costs and manage Them into the future
To support and enable annual FTO analysis, companies must develop good sources of shipment information on loads they do not control (like EDI 856 data on inbound prepaid shipments or DC reports on collect outbound shipments) and develop a good freight term negotiating process that will be utilized going forward.

Transportation management organizations that utilize a web enabled transportation management system can more easily accomplish FTO because they have an application to receive and act on data about prepaid inbound and collect outbound loads. These organizations would make daily tactical use of an optimizer that can be used for FTO analyses but regular, periodic FTO efforts are highly valuable, even for more manual operations.

This process is ever evolving. There is always a need to continue to report, analyze then optimize the decision tree and processes.

Step 2: Analyzing freight costs
Determine the transportation cost of controlling a customer’s or a supplier’s moves. This cost will later drive the negotiation process with suppliers or customers. It is important to understand that the cost of controlling a customer’s or a supplier’s moves is not simply the cost of the moves themselves, but the difference between the total solution cost with and without the customer’s or supplier’s moves. The moves for most suppliers and customers do not affect the overall solution structure, but some do, either by changing pool consolidation or pool distribution economics, altering multi-stop truckload routing opportunities, or eliminating backhaul, continuous move, or triangle route opportunities. And while high volume customers or suppliers, particularly those with geographically concentrated moves, are much more likely to affect the overall solution structure, FTO analysis often uncovers lower volume customers and suppliers whose moves are disproportionately important.

Step 3: Customer or supplier negotiation
Using the transportation cost of controlling a customer’s or supplier’s moves to negotiate prices with them that reflect possible change in control of the moves.

The sales group or the purchasing/ procurement group will typically drive this portion of the FTO effort; however, they almost always need support from transportation professionals to address customer or supplier objections and evaluate customer or supplier pricing offers. It is very common for initial supplier freight allowances to be unrealistically low. It is also very common for customers to expect to receive all the cost reduction benefits in return for continued business rather than any increase in margin.

Organizational incentives often need to be aligned to encourage and reward the sales or purchasing groups to capture these savings. Otherwise, these groups may negotiate away this freight term opportunity at too low a value in return for benefits that are more common in their historic negotiation process, or for a benefit that flows directly to their group/ function. Fortunately, most procurement organizations that are not negotiating based on total landed costs are trying to move that way.

Step 4: Implementation
All the inputs gathered in the study are brought together on a software platform. Key performance indicators are established on the baseline analysis to measure the effectiveness against cost improvement and execution excellence.

Rick LaGore is CEO of R² Freight & Logistics.

What you need to know about using intermodal for shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Logistics, Global Trade Daily, Rail

Ten Things You Need to Know About Domestic Intermodal Services

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Intermodal continues to be the fastest growing segment of domestic transportation and industry experts do not see the trend changing anytime soon.

A study from Morgan Stanley and FTR Associates indicated 46 percent of the companies surveyed will convert some of their truckload lanes to 53-foot domestic intermodal. The reason is the continued pressures on truckload carriers have companies hedging their bets to gain access to affordable and reliable capacity.

With that said, what does a new entrant into the intermodal need to know?

The number one issue new intermodal shippers run across is weight and distribution of intermodal weight. Domestic intermodal containers can be loaded at 42,500 versus truckloads at 45,000 pounds. The difference in weight is because of the combination of the intermodal container and chassis is greater than a 53-foot dry van. The domestic intermodal container is also more rigid and heavier than a standard dry van. The rigidity allows the containers to be double stacked on trains and allow for safe container transfer from rail to chassis at the ramps.

As a general rule, shippers are responsible for blocking and bracing their domestic intermodal loads. This is important to understand because many shippers have pushed off the blocking and bracing of truckloads to their carrier. On the plus side, railroads are very helpful in providing direction and load plans on how to best block and brace the loads.

Do not shy away from putting retail deliveries on intermodal. As a matter of fact, retail deliveries are one of the best lanes to use intermodal. The reason these lanes provide a more reliable delivery is intermodal service allows shippers to gain control through the management of a buffer window on the delivery date that cannot be done with truckload shipments. For truckloads, shippers have to forecast the ship date much tighter because they need to make sure they hit the RAD date on the transit time of the driver. If a shipper’s truck arrives early, they could be faced with layover charges, while the driver holds the goods to avoid the retailer’s fines. Through intermodal service, shippers can pad the transit by having the container deliver at the destination ramp one or two days prior to the RAD date and then have a short distance dray for delivery to their customer.

Intermodal transit times are roughly truck, plus a day. When two railroads are needed to complete a lane, it is typically truck, plus two or three days. Expedited transit options are available on some intermodal lanes.

High security loads are a perfect fit for intermodal. Double stacked intermodal containers restrict access and protect cargo while on trains. The short drays at origin and destination ramps are the only segments of the move going over the road.

Typical cost savings by converting from road-to-rail is roughly 18 to 20 percent. There may be lanes where the savings are greater, but consider those pleasant surprises versus going into it thinking that it will be the norm.

A domestic intermodal container is similarly built to an ocean container, but that is where the similarity ends. Domestic containers are all 53 feet. Unlike ocean containers, domestic intermodal containers do not have rings in them for bracing purposes.

Railroads do not sell retail, meaning shippers cannot work direct through the railroads. Shippers will work through what are called intermodal marketing companies (IMCs). IMCs buy on a wholesale level with the railroads and are the groups shippers work with to get their shipment from origin to destination. The railroad and IMC relationship works extremely well with today’s door-to-door intermodal product. The arrangement allows the railroads and IMC’s do what they are good at, while also allowing the IMC to layer on additional flexibility and reporting the shipper needs to run their business. The relationship also allows shippers to have one provider to work through and gain access to all railroads versus having to call the individual railroads for their respected West Coast and East Coast lanes.

Domestic intermodal has a peak season, and related challenges and charges, much like ocean shipments. Some IMCs have options available to guarantee the capacity and eliminate the charges, so make sure to ask questions around the topic to ensure you’re covered.

Not all IMCs are created equal, so be sure to vet the IMC before moving forward. The good IMCs will be a great source of education and will hold your hand all the way through the process of converting your truckload lanes over to intermodal lanes. In some cases, the railroad will also make their own recommendations.

Rick LaGore is Chief Financial Officer of Integrated Distribution Services, Inc., an intermodal marketing company.