transportation

Article: Nearly 2,000 brokers lose operating licenses following warning notice on higher surety bond limits – DC Velocity. DC Velocity

By: Mark B. Solomon

“Nearly 2,000 property brokers have lost their operating authority this week after failing to comply with a new Congressionally mandated increase in surety bonds used to pay claims by truckers for late payment or nonpayment for their services, according to a carrier marketing website.

The license revocation process began Dec. 2 after the expiration of a 60-day grace period established by The Federal Motor Carrier Safety Administration (FMCSA) for brokers to comply with the higher limits. FMCSA, a unit of the Department of Transportation, oversees the operations of freight brokers, among other tasks. The data came from My Carrier Resources, a Platte City, Mo.-based company run by Michael J. Curry, who said he has 37 years of transportation experience, 30 of them as a broker. Curry said he obtained the information on the revocations from the FMCSA website.

Language incorporated in the 2012 law re-authorizing the nation’s transportation funding programs required brokers to post a $75,000 surety bond to guarantee payment to motor carriers if the broker fails to make good. The previous bond amount had been $10,000.

It is unclear how many brokers voluntarily surrendered their licenses versus how many had their authorities revoked. Warning notices to affected brokers were sent starting Nov. 1. These notices informed brokers that their authorities would be pulled if they didn’t demonstrate compliance, according to Curry.

Notices were sent to approximately 9,000 brokers starting Nov. 1 and continuing from Nov. 4 through Nov. 8, Curry said. On Monday, 1,900 brokers had their operating authorities revoked, he said. That was followed by 22 on Tuesday, and 855 yesterday, Curry said. As of mid-day today, the FMCSA site reported three revocations, all of them voluntary, Curry said. The revocation period from the November round of notices is set to run until Dec. 10, Curry said.

Brokers would be eligible for reinstatement if they meet the higher bonding requirements, Curry said. It is estimated that there are 21,000 property brokers operating in the United States.

The battle over the bonding levels has pitted the Transportation Intermediaries Association (TIA), the Owner-Operators Independent Drivers Association (OOIDA), and the American Trucking Associations against independent broker interests represented by the Association of Independent Property Brokers & Agents (AIPBA). Independent broker advocates said thousands of brokers unable to either come up with the higher upfront payment or obtain a bank letter of credit attesting to the availability of funds would be driven out of business or become agents of larger brokers. They also accused TIA of trying to corner the market on surety bond underwriting, a claim TIA has denied.

Supporters of the higher bond levels have argued that the increase was reasonable because the $10,000 threshold had remained in force for 30 years. They also maintained that it was part of a broader effort to ensure that the brokerage segment, which has long had a reputation for shady activity, would be populated by ethical, well-run, and well-capitalized firms.

AIPBA had been willing to agree to a $25,000 surety bond threshold as an inflation-cost adjustment. Carrier interests, meanwhile, were seeking bond levels well into six figures.

Last week, a federal appeals court in Atlanta denied an AIPBA request for a temporary stay of the FMCSA’s action.”

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By Mary C. Holcomb, Ph.D., and Karl Manrodt, Ph.D., Contributing Editors

September 01, 2013

The Masters of Logistics have developed strategic partnerships with carriers that enable them to keep costs low while providing innovative service to their customers—and our data show that this value-added perspective is leading to performance that is significantly better than their competitors.

Some have said transportation is a street leading to unlimited destinations. On this street, some are headed to a place where transportation is viewed as a commodity. Others have made a dramatic U-turn and are headed towards an end point of long-term commitment where transportation providers are viewed as critical partners to the success of the firm. Meanwhile, the majority remain in the middle, parked in the off-ramps, wondering why everyone is in a hurry. For those headed to commitment or commodity, the reasons for urgency are apparent and inescapable.

This allegory reflects a trend continued by a group of carriers and shippers towards the co-creation of value, and this group has moved further along the road to positioning transportation as a strategic value-add function. In fact, the results of the 22nd Annual Trends and Issues in Transportation and Logistics (Masters of Logistics) findings indicate that this “value-added” view of transportation directly relates to better company performance in areas such as profitability, return on assets, competitive position/market share, and customer service.

This year’s findings reveal that the value-added approach to transportation goes beyond the core carrier program: It’s an active two-way street where both parties are committed to the long-term success of the other; a strategic relationship where both parties keep their focus on forging a new way of managing transportation.

In addition to the annual global survey which is the primary source of data presented in this article, the authors, along with survey sponsor Con-way Inc., conducted in-depth interviews with vice presidents and directors of transportation, logistics, and supply chain at Fortune 100 companies as well as discussions with CEOs of the top ranking truckload (TL) and less-than-truckload (LTL) carriers. The interviews provided a wealth of perspective concerning the commoditization of transportation.

The findings from the survey in tandem with the interviews point to a pivotal change in the way transportation is being viewed and managed by companies. A critical mass is emerging at both ends of the “commodity/value add spectrum,” with both sides cite compelling, data-driven reasons for their positioning of transportation. Four of the most frequently mentioned factors that emerged from the study regarding forces that are changing the way transportation and logistics is managed are: business climate; cost to serve; customer service; and functional alignment.

Business climate: Changing, uncontrollable
Over the past few years, various facets of the business environment have altered how shippers and carriers manage their operations. Participants reported that foremost among these is changing customer requirements, followed by cost to serve and demand uncertainty.

Regardless of size of company or position in the supply chain (e.g. retailer, wholesaler, manufacturer, or supplier), trying to meet the performance expectations and needs of customers is increasingly difficult.

The environment is even challenging for carriers. According to Derek Leathers, president and COO of TL giant Werner Enterprises: “Many trucking companies are dealing with a very high debt load and limited access to credit, equipment is much more expensive, and the residual value of old trucks is low. Added to that, drivers are simply not available.”

What this means for shippers and carriers alike is that flexibility is becoming more critical. The question for shippers is how can they increase their flexibility, especially from transportation providers.

One option would be to use a wide range of carriers. If transportation is all the same, it really doesn’t matter who moves the goods. This is the commodity perspective. Or, you could view transportation as a value-added service and work to develop relationships with a set of carriers who will work with you and provide the needed flexibility. Either option provides a response to changing customer requirements. However, the big question is whether or not it’s the right one in a few years if capacity continues to tighten and transportation costs keep on rising.

Cost to serve: Transportation’s move to the fast lane
As a derived demand, transportation has reflected inconsistent demand patterns due to changing consumer requirements. The result has been an increase in the cost to serve that is being directly felt in transportation expenditures.

This year’s study results confirm that transportation costs increased at a brisk rate from the previous year. Companies who spent more than 5 percent of sales on domestic transportation grew from 26.8 percent to 30.9 percent from 2012 to 2013. While this shift was noteworthy, the largest swing occurred for those companies that previously had been spending 1 percent to 2 percent of sales on transportation and are now spending 2 percent to 3 percent, representing a 26.3 percent increase in the companies in this spending category—a difference that can translate into millions of dollars.

Where are transportation dollars being spent? The data indicate that TL continues to dominate the modal picture, commanding 32.2 percent of the transportation budget. TL’s portion of the budget has remained essentially unchanged for the past three years suggesting that this mode has reached a sort of equilibrium.

Other data support this conclusion. Some 57.8 percent of companies in this year’s study have now completed the move to multiple modes of transportation to meet delivery schedules. An additional 15.7 percent are in the process of implementing this action to gain greater flexibility. “In the past, 3PLs mainly arranged or provided multi-mode capability,” says Brian Mayer, vice president of global logistics and materials management at Eaton Corporation. “Now, for a carrier to be considered a strategic partner they must bring these resources to the table.”

The data suggests that LTL, intermodal, and surface parcel are the beneficiaries of this multi-modal approach to meeting transportation needs. In particular LTL, at 21.1 percent of the overall transportation budget, appears to be in somewhat of a resurgence as this mode’s share increased for the first time since its high of 28.9 percent in 2007.

Customer service: Stagnation
During our interviews, both shippers and carriers frequently mentioned the importance of service. In fact, shippers stated that service was a critical value-add in their strategic carrier relationships. What’s driving this focus on service? The data gleaned from this year’s study show that, in general, service for the past two years has been stagnate.

Average on-time delivery for the surface transportation modes remained the same as last year, while the percent of correct invoices and equipment availability showed slight declines. Damage rates for all the surface modes, except for parcel, increased dramatically. “With the ever increasing changes in customer requirements, it’s hard to increase service,” says Tommy Barnes, president of Con-way Multimodal. “To do this, there needs to be some level of stabilization in service requirements.”

However, very different results were reported for international modes of transportation. As our data show, on-time deliveries for air freight and ocean improved substantially from 2012 to 2013 as did the percent of correct invoices and equipment availability. This year marks the third consecutive year that ocean has improved its on-time performance.

Company alignment: Purchasing takes an increasing role
The way we manage and control transportation is fundamentally changing. Part of this change is driven by where the responsibility for transportation decision-making resides in the company. As Table 3 indicates, transportation and logistics is still the primary functional area with responsibility for managing and controlling transportation processes. However, a closer look at the data shows that when it comes to preparing and requesting quotes and bids, purchasing/procurement either solely, or in combination with transportation/logistics, leads this task in 43.1 percent of companies. Purchasing/procurement is also materially involved in carrier negotiations with 36.2 percent of companies reporting that this functional area either controlled, or jointly led, this activity. As expected, operations planning and carrier performance are primarily directed by transportation/logistics. What is interesting is the percentage of companies in which these core transportation activities are overseen jointly by the two functional areas (19.8 percent and 17.5 percent, respectively).

The data in Table 3 was collected by our large-scale survey and confirms the information we learned through the in-depth interviews: Transportation decision-making seems to be headed in what seems to be opposite directions. In a growing number of companies, procurement/purchasing is becoming much more involved in transportation management. Is this a good or a bad thing?

The overall feeling from the interviews was that when purchasing/procurement is in charge of transportation, this unit often views it as a commodity much like other products or services they acquire. On the other hand, companies that view transportation from a value-added perspective tended to have the function at an organizational level commensurate with sales, manufacturing, etc.

The “new” Masters of Logistics
The phrase “Masters of Logistics” was coined during a time when the size of company (based on annual sales revenues) made a significant difference in managing logistics and transportation. Over the years of conducting this study, the impact of the Masters (companies with annual revenues greater than $3 billion) has ebbed as many of the critical difference-making elements—such as technology and level of supply chain visibility—have become more widely available to companies of all sizes.

The results of this year’s study point towards a shift by the Masters of Logistics that is significantly different from smaller companies. The survey data indicate that the Masters are focusing on continuously improving their transportation processes in order to keep costs low.

Further, the Masters perceive that they are the primary source of innovation in transportation services. The interview data reveal that it’s the partnership between the Masters and their strategic carriers that enables them to focus on these two important objectives.

But, let’s be clear about this shift. Not every large-size company is moving in this direction. The evidence from the survey shows that in many companies—including a healthy percentage of the Masters—transportation is perceived as a commodity where the services provided have no essential differences, and the selection of a primary carrier relies heavily on price. In addition, the perceived cost of switching to another carrier is low.

One other key trend emerged from the data: The Masters aren’t always the Masters of Performance. Smaller and medium size companies, just like a high proportion of the Masters, also reported results that were better than competitors across factors such as firm profitability, return on assets, market share, and customer service levels. In the years to come, we believe that the “new” Masters of Logistics will be dictated by the results they achieve, and not by the size of the company.

Analysis of high performing firms found some interesting results, especially around the discussion of commoditization. The majority view transportation and the design and functionality of their transportation services as crucial to their competitive positioning. High performing companies also feel that their primary or core carriers help them acquire new customers through the services they provide.

“We have to deliver more services and be deeper in the customer’s business,” says Leathers. “To have a successful partnership we have to ‘swim upstream’ in their supply chain.”

However, the focus is more than just transportation effectiveness. High performing companies reported that they are constantly improving transportation operational efficiency, in addition to continuously refining and improving services in order to keep costs low. “Mutually looking at ways to take costs out of the equation is an expectation of our strategic carrier partners,” says Eaton’s Mayer.
Barnes, of Con-way Multimodal, agrees with this top shipper. “To deliver value-add service we have to embrace a lean culture that constantly seeks ways to reduce costs while delivering differentiated service.”

Are high performing companies and the Masters of Logistics forging a new path to the future through their value-added view of transportation? Certainly the results of the high-performing group hint that this is the case.

It is too early to conclude that this view alone drives company performance that is much better than competitors? The findings from the in-depth interviews suggest that as the business and regulatory environment continues to create adverse operating conditions, strategic relationships between shippers and carriers where transportation is viewed as a value-added function will have a significant impact on the company’s performance.

Changes to the hours of service rules, the impact of CSA 2010, the volatility of fuel prices, tightening of carrier capacity, the uncertainty of demand, and changing customer requirements are just a few of the adverse conditions that face transportation in the near future.

The question to be answered in future annual studies is which view of transportation—value-add or commodity—will contribute to better company performance. The answer to this question is right around the bend.

On April 10, Obama released a transportation budget proposal for 2014. “The budget provides a total of $76.6 billion in discretionary and mandatory funding for the Department of Transportation, plus an additional $50 billion to jumpstart economic growth and job creation through immediate infrastructure investment.”
Obama hopes that the new budget will serve as a jumpstart to economic growth and the creation of hundreds of thousands of jobs.
The proposal calls for a $27 billion one-time increase to go towards “critical highway infrastructure” and cross- border roads in addition to the $41 billion Congress has already authorized for highways next year. The $27 billion is part of a larger $50 billion transportation infrastructure investment plan intended to go towards roads, transits, railroads, and airports. By 2015, Obama wants Congress to increase the nation’s annual spending commitment to highways and public transportation by 25%.
Obama says that the new budget will be paid for by winding down the wars in Iraq and Afghanistan. “Because rebuilding our transportation infrastructure is an urgent need, the Budget uses savings from ramping down overseas military operations to fully offset baseline Highway Trust Fund solvency needs, the out-year surface transportation reauthorization allowance, and the rail reauthorization proposal.”
The new proposal leaves many skeptical. Among the skeptics, is the American Trucking Association. In a written release the Association voiced concern that “the budget fails to provide adequate detail and direction. For five years, we’ve waited for President Obama to clearly state how we should pay for these critical needs, and I’m sad to say, we continue to get lip service about the importance of roads and bridges with no real roadmap to real funding solutions. It’s time to show us the money and where you intend to get it from”, said Bill Graves, CEO of ATA.
Rep. Tom Petri, chairman of the House Subcommittee on Highways and Transit, says “the president indicates he wants to use savings from reduced overseas military operations to pay for infrastructure improvements, but this is not a long-term solution and only further emphasizes that we’re spending more than we’re taking in.”

For more information on the 2014 Transportation Budget, visit: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/transportation.pdf

Georgia Logistics assembles a set of facts and figures concerning the Logistics Market every month. Here are some of the highlights taken directly from the report:

• Dow Jones Transportation index rose 3.9% during the month of February.

• The USDOT’s freight transportation services rose 1.2% in January 2013. The index’s reading of 111.3 was up 1.3% from January 2012. (Source: US DOT)

• The February shipments index rose 5.6% over the previous month and rose 0.5% year-over-year. The February expenditures index increased 1.8% for the month, and decreased 1% year-over-year. (Source: Cass Information Systems | Cassinfo.com)

• Intermodal rail traffic in February 2013 was 10.5% higher than in February 2012 and 3% higher than January 2013 totals. Intermodal loadings have experienced year-over-year gains for 39 straight months. (Source: AAR.org)

• The spot market for truckload freight in January fell 8.1 compared to the previous month, and was 1% lower year-over-year. Truck capacity fell 6.3% for the month, and was up 16% year-over-year. (Source: TransCore Freight Index | www.transcorefreightsolutions.com)

• U.S. average diesel prices fell to $4.09 per gallon, down 4.2¢ since last week. The U.S. average diesel price was 3.5¢ lower than the same week last year. The average price of diesel in the lower Atlantic states was $4.06 per gallon. (Source: U.S. DOE)

• The trucking industry added 5,600 jobs in February. The trucking workforce increased 0.4% over the previous month and rose 3.2% over the previous year. (Source: U.S. Bureau of Labor Statistics)

• Global air freight traffic in January increased 5% from one year ago. North American air freight in January rose 0.6% year-over-year. (Source: IATA.org)

• In January, the average international air cargo rate fell 10.5 points from December; the largest monthly drop in the index since its inception in May 2012. The average price of air cargo leaving the United States in January stood at $3.25 per kilogram. (Source: Drewry)

• Import volume through major U.S. container ports is expected to increase 2.3% in March. Total U.S. containerized imports are expected to increase 4.3% during the first half of 2013. (Source: NRF/Hackett Associates)

• The U.S. GDP increased 0.1% in the fourth quarter of 2012 according to the second preliminary estimate released by the Bureau of Economic Analysis. (Source: US BEA)

• The U.S. trade deficit increased by 16.5% in January to $44.4 billion, the largest deficit increase since January 2011. Exports fell 1.2% to $184.5 billion and imports rose 1.8% to $228.9 billion. (Source: US DOC & Census Bureau)

• The Consumer Confidence Index increased to 69.6 in February 2013 from 58.4 in January 2013. (Source: The Conference Board)

For the full report click here: http://www.georgialogistics.com/images/public/snapshot/Snapshot_2013_3.pdf

For most companies, transportation cost is 5-6% of total revenue. Consequently, even small improvements can mean thousands in savings.

-Transport Distribution Services is able to save most companies between 10-50% on their transportation costs.

-Better logistics means safe delivery! Our damage claim rate is one of the lowest in the industry. (.001875 vs. industry avg of over 2%)

-We provide up to 21% faster transit times than our competitors on destinations over 500 miles from origin.