September/October 2018
Tariffs, Market Changes Test Carrier, Customer Collaboration
The looming prospect of increased tariffs and the resulting potential disruption have added a new dimension that tests the value of collaboration between customers and carriers that has been built over time in the intermodal sector, experts said.
Speaking at Intermodal EXPO, Ron Brothers, senior director of global transportation and logistics for Callaway Golf, offered this frank assessment.
“We’ve been thinking about the subject [tariffs] since they were first announced. Now that we have a better sense of direction of where things will go, we will have to put our contingency plans in place. Demand is fickle. We are crossing our fingers that we made the right strategic decisions."
That means elaborating on a strategy such as shipping early when possible to avoid the tariffs and moving around product sourcing when possible.
Laura Crowe, senior director of global logistics for Walmart, agreed, saying there " was an emphasis on shifting import cargo destinations among U.S. ports. For Greg Oberting, CEO of Interstate Commodities, tariffs create a different set of complexities because the company’s focus is exporting grain products.
“As imports surge, we fear there will be a huge hole [in box capacity]," he said. He compared freight flows to an orchestra, saying, “We don’t want the music to stop. We want the consistency. Imbalances will create huge negative long-term effects for everyone."
Planning Horizon, Adjustments
While tariffs are a major concern, the experts said they won’t diminish the focus on innovation needed to develop products and build supply chain flexibility. Tariff uncertainties and shippers’ response to them has heightened the need to plan for ocean and inland freight capacity in advance, typically three months or more.
“We won’t stop developing new products," Brothers said. “We won’t decrease our supplier base, but it takes time to shift [sourcing]."
“We tend to build in lead time," Brothers said, using product design calendars that stretch over a two-year period to increase flexibility.
Mike Gavle, vice president of global operations for Rockport Group, dramatized the potential dislocation by saying there was no practical way to move footwear production sourcing if or when increased tariffs take effect.
“Shippers have to do our part," Gavle said, by bringing attractive freight. “We need to help [freight providers] to help us."
Gavle said that the customer has to recognize the fact that paying rates that are sustainable for ocean carriers is important, because that approach will assure that your freight is loaded.
Walmart’s Crowe stressed the importance of collaboration, as well as the critical step of making sure that intracompany relationships are adjusted whenever “silos" appear that cramp efforts to work together.
“We have to try to be the customer of choice," Crowe said, as freight markets change with the advent of ELDs and the steadily aging workforce.
Oberting said the export focus, and Interstate’s need for capacity in rural areas where grain products are sourced, has made the process of finding equipment to reposition in order to consolidate freight moves what he termed a “pinch point."
Asked what could be done to increase intermodal use, Crowe and Brothers both said to reduce demurrage and delays in transferring freight between ports and railroads.
“We are not increasing [intermodal use] at this time," Brothers said. He explained that the company’s focus on moving imported finished goods has led to a consistent use of intermodal, as well as the fact that it can be more challenging to add capacity in order to take advantage of lower rates relative to OTR moves.
Ocean carriers particularly need to step up their technology to capitalize on efficiency gains from building larger ships, Oberting said.
Retailers’ Transformation
Matthew Shay, CEO of the National Retail Federation, described how businesses are being affected by e-commerce in a conversation with IANA Chair Adriene Bailey.
“We’re in the midst of an enormous transformation," Shay said. The reality is that “brick and mortar" businesses are diversifying into e-commerce at the same time that some online vendors are making limited steps to open store locations.
Shay addressed some misconceptions.
Twice as many retail locations have been opened in recent years than those that have been closed, countering the view that online sales are killing off in-store sales.
He " said that small businesses continue to grow, and are not being gobbled up as a group by larger companies. In fact, he believes the small businesses have the ability to leverage their more personal relationships, including through internet sales.
Changes will continue in the same direction in the years ahead, he said.
“We will continue to see the world where consumers are more agnostic as to the [sales] channel. Consumers’ experience will be improved," Shay said. “Delivery of products will be improved."
Stronger Outlook
With a healthy economy and increased sales, the NRF has increased its GDP forecast to at least 4.5 percent growth, compared with the earlier projection of 3.8 percent to 4.4 percent. The 2017 tax cut was “a huge benefit that allows businesses to reinvest," Shay said. “We are poised to have an outstanding holiday season. Customers are in a really healthy place."
Shay identified potential risks for retailers and the businesses such as freight companies that supply them.
One is finding people — with the number of open positions standing at 600,000 more than the number of unemployed Americans, he said.
International trade policy battles and the risk of inflation " bear watching, he said, as does the lack of federal infrastructure investment.
At the same time, he noted that the freight delivery network is evolving faster today and will continue to do so in response to the changing market forces. Using a football comparison, he said freight providers in the room were like offensive linemen.
“You are the heroes," he shared. “Without you nothing gets done."
Retailers tend to think of supply chain providers, including intermodal businesses, as extensions of their brand. There is a growing need for partnership to support that view, since consumers are becoming more demanding and retailers are the ones who get all the credit — or blame — from the customer when there is a supply chain breakdown.
Relationships’ Value
“The highest level relationships are the ones where everyone takes a strategic approach and thinks of how they can add value and serve the customer," Shay said.
Brokerage experts speaking at EXPO sounded a similar theme, citing the importance of creating long-term relationships with intermodal service providers, rather than thinking of that business as a backup option.
“Shippers have to have a plan," said Rick LaGore, CEO of InTek Freight & Logistics, and not assume that intermodal capacity will automatically be there. “No longer is [intermodal] the off-ramp for my problems this week."
George Abernathy, chief revenue officer for tech company FreightWaves and a former brokerage executive agreed.
“The easy answer has been to hand off [truckload freight] to intermodal when capacity is tight," he said, adding “good luck with that" in 2018 freight markets. Other brokers noted that intermodal continues to be presented to customers as a lower-cost option to truckload.
David Menzel, president of Echo Global Logistics, said cost savings to customers compared with truckload has been a key feature of the intermodal value proposition.
Echo, like other brokers, offers intermodal as part of a broader service for customers of all sizes who use the company for managed transportation or more transactional business.
“There is so much value in intermodal," said Tom Sanderson, executive chairman of 3PL Transplace, citing factors such as fuel efficiency, reduced highway congestion and addressing the shortage of over the road drivers.
Like Menzel, he stressed the importance of the ability to create a cost-effective value proposition that relies on the ability to manage a full range of freight services.
Detention Woes
One area for intermodal to address is the growing trend toward adding accessorial charges, such as detention.
LaGore said InTek chooses to absorb many of those costs, in order to preserve relationships.
“It’s tough to find a customer," he said. “We have to do everything we can to keep them." At the same time, he said the tendency toward adding more accessorial charges heightens the need to educate customers in advance to those fees.
Sanderson " said shippers don’t want any part of paying accessorial charges that are tacked onto freight bills. It is particularly difficult for companies such as Transplace to pass along those fees that are charged by box pool operators because his company doesn’t own the assets used to move the customer’s freight, he said.
Multiple brokers said the perception of companies that offer a digital freight marketplace is an oversimplification because a large number of third-party providers use advanced technology to help in decision-making.
Technology such as artificial intelligence that is being used in some brokerage settings today will become a greater factor when shippers begin to use artificial intelligence in tendering loads, said Menzel.
