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Brokers, 3PLs Gaining Share as Recession Spurs Competition
Monday, 29 June 2009 00:00

Freight brokers and other third-party logistics providers say their non-asset-based models are helping them to steadily gain market share during the ongoing recession.

The change may be a long-term trend or the effect of cost-conscious shippers, asset-based carriers’ diversification, stronger customer relationships—or all of the above—but freight brokerage is playing a larger role today in threadbare shipping markets, industry experts told Transport Topics.

“Our business and the whole brokerage business have been growing for the last 20 or more years,” said John Wiehoff, chairman and CEO of C.H. Robinson Worldwide, which uses more than 50,000 carriers.“We have been taking market share for quite some time now because of shippers’ acceptance of 3PLs.”

“We may be a short-term marriage of convenience for some, but we don’t feel that’s the long-term driver of the market,” Wiehoff told TT. “The things we want to be good at are people, technology, building relationships and account management—that is what we believe we are bringing to the marketplace.”

George Abernathy, executive vice president of 3PL Transplace Inc., said asset-based carriers “have become more broker-like” in response to market pressure and stronger brokerage companies that are gaining share.

Ten of 11 publicly traded dry-van truckload carriers also do brokerage business, including Werner Enterprises and J.B. Hunt Transport Services.

Derek Leathers, chief operating officer of Werner, said shippers are more interested in exploring brokerage options the company offers as they search for lower rates.

“The day of carriers being all things to all people is over,” said Leathers. “The aggressive rate negotiations have taken away any incentive to do that. A blended solution is what we are trying to achieve.”

That means focusing Werner’s assets on freight lanes where volume is very dense and using third-party carriers on other routes, he said.

“We are seeing an evolution that has been occurring all over the brokerage world,” said Dahlman Rose analyst Jason Seidl. “Brokers have gotten larger. The success that brokers are having now is because shippers are looking for the lowest-cost provider, and that is brokers.”

“They [brokers] are proving their mettle and building relationships with shippers,” said Andy Vanzant, vice president of sales for Roehl Transport, during a conference call.

Roehl began a brokerage operation 18 months ago “almost as a last resort” to offer more freight options and retain customers, Vanzant said.

Others don’t see a market-share shift.

“I’m not convinced that [brokers] are gaining market share,” said John Smith, CEO of CRST International. “We have our own brokerage, and we have lost some brokerage accounts because [shippers] want to
use asset-based carriers. On the asset side, we have lost business due to brokerage.” “I do not believe that brokerage has taken market share during the downturn,” said Noël Perry, senior consultant at FTR
Associates and a former CSX Corp. and Schneider National executive.

“Asset players tend to switch their overflow freight from brokerage to their idle assets when freight falls,” Perry said. “This phenomenon should temporarily slow the long-term trend toward brokerage that I expect
to see resumed when freight begins to grow.”

Hard evidence of share gain does not exist, experts say, but multiple anecdotal indicators point that way. J.B. Hunt’s brokerage loads rose 80% in the first quarter, and Werner’s brokerage business rose 21% last
year.

A Transportation Intermediaries Association survey found that brokered freight volumes held steady from the fourth quarter to the first quarter, while American Trucking Associations’ tonnage index fell 3% over
those periods.

Consulting firm Armstrong & Associates measured a 6.7% in-crease in brokers’ net revenue, the difference between the price shippers pay and the cost of transportation, from 2007 to 2008.

Abernathy and Leathers agreed that when the market improves, small, undercapitalized brokers will have difficulty.

“Small brokers with no capital to back them that suffer liability accidents have a chance of survival that is less than zero,” Leathers said. “The large, well-capitalized brokers, of which we believe we are one, will survive.”

“There will be a fall out among some of the brokers who don’t have a depth of capacity,” said Abernathy— although he said he expects well-financed brokers with a large corps of carriers to thrive.

“The pie for the brokers will grow in the future, but more parties will be trying to carve it up,” Seidl said.

“The logistics companies are here to stay,” said TIA President Bob Voltmann.

“[Brokers] keep adding value by making themselves more relevant. They are showing that they can take shippers’ freight, move it successfully and find good-quality carriers with good rates in any market,” Voltmann said.

Transport Topics, 6/29/2009

 
Freight Coalition hails new surface transportation blueprint
Monday, 29 June 2009 00:00

CAGTC testifies to national need for dedicated freight funding program

The Coalition for America’s Gateways and Trade Corridors commended House leadership for introducing a blueprint framework that includes a number of the critical programmatic components necessary to address goods movement infrastructure needs in the next surface transportation authorization. Among the elements applauded by the Coalition are Projects of National Significance (PNS) and a new freight improvement program that would provide dedicated funding for highway goods movement projects. Nationwide freight planning is also mandated.

“We congratulate Chairman Oberstar and the Transportation and Infrastructure Committee for developing a legislative blueprint that takes establishes freight planning and funding as the first important step toward increased investment in a national goods movement infrastructure network,” said Leslie Blakey, executive director of the Coalition. “We’ll work with Congress as the specific programmatic and funding elements of freight-related programs are fully addressed.”

To successfully address our nation’s freight needs in the upcoming bill, The Coalition believes these components are essential

  • A holistic, multimodal approach for our national goods movement system that includes highway, rail, port and intermodal projects;
     
  • A new, discretionary federal-aid program that would select projects through a merit-based competitive process and award funds based on long-term, full funding grant agreements; and
     
  • Provide funds specifically for goods movement projects through new and broad–based fees which are protected from diversion by a new, separate and firewalled account or fund.

Earlier in his testimony before the Senate Commerce, Science and Transportation Committee, Coalition member and executive director of the Mississippi Department of Transportation Larry “Butch” Brown reiterated the Coalition’s call for Congress to create a new discretionary federal program and Freight Trust Fund (FTF) and partnership with the private sector. Brown stated, “We must focus on the system as a whole, rather than viewing the nation’s transportation infrastructure as several different systems that occasionally interact. We must think in terms of the entire network, interconnected and interdependent.”

CAGTC’s call for a national freight program with dedicated funding is echoed by a number of other organizations, including the American Association of State Highway and Transportation Officials (AASHTO), Freight Stakeholders Coalition, National Association of Regional councils (NARC), the Intermodal Association of North America (IANA) and the American Association of Port Authorities (AAPA). (CAGTC)

American Journal of Transportation, 6/29/2009

 
Republicans Criticize Early Vote on Cap-and-Trade Bill in
Monday, 29 June 2009 00:00

House Democratic leaders said they hoped to pass a controversial cap-and-trade bill late last week, despite vocal protests by Republicans who said the complex legislation amounts to a large tax increase and needs more time for debate.

Republican leaders, speaking at hastily called news conferences only days before the anticipated vote, cautioned House Speaker Nancy Pelosi (D-Calif.) to give the landmark energy bill more time for hearings.

Rep. John Mica (R-Fla.), ranking Republican on the House Transportation Committee, said the bill could affect transportation but that his committee would have no opportunity to hold hearings.

“This is the largest energy tax increase in the history of the United States, and probably in the history of the world,” Mica said.

At press time, a spokesman for Pelosi confirmed that House Democratic leaders had scheduled the bill for a vote on June 26, hoping to pass it before the House’s Independence Day recess.

Democrats denied that they were rushing the vote, saying it closely follows a timeline set in January by Rep. Henry Waxman (D-Calif.), chairman of the House Energy Committee and a co-sponsor of the Clean Energy bill.

“In our view, this is exactly what’s been outlined,” Pelosi’s spokesman, Drew Hammill, told Transport Topics.

A potential obstacle for the bill’s passage apparently was eliminated last week after House Democratic leaders announced an agreement to offer concessions to congressional members from several agricultural states.

Rep. Collin Peterson (D-Minn.), House Agriculture Committee chairman, announced last week that he is supporting the legislation after he reached an agreement with Waxman that would allow farmers and ranchers to participate in a market-based carbon offset program.

But Republicans said their opponents were preventing the public from learning important details about the cap-and-trade plan, including its cost to consumers, bypassing several key committees.

Rep. Shelley Moore Capito (R-W.Va.) called the cap-and-trade bill “a national tax.”

“I think we are wrongheaded when we are going to tax individual consumers and businesses,” Capito said at a June 24 news conference. “We’re going to drive our manufacturing jobs across the oceans.”

House Republican Whip Eric Cantor (R-Va.) questioned whether Democrats had enough votes to pass the bill.

“What we’re hearing is that the proponents of this legislation, speaker Pelosi and Mr. Waxman, have maybe 190 votes,” Cantor said. “That falls way short of the necessary 218.”

The bill’s sponsors, pointing to a study by the Congressional Budget Office, said that the net annual cost of the legislation would total about $175 per household by 2020.

The proposal “sets America on a course of energy independence while taking significant steps to reduce dangerous global warming pollution,” Waxman said.

President Obama weighed in on the legislation during a June 23 news conference, urging the House to pass the bill quickly.

“At a time of great fiscal challenges, this legislation is paid for by the polluters who currently emit the dangerous carbon emissions that contaminate the water we drink and pollute the air we breathe,” Obama said. “It also provides assistance to businesses and communities as they make the gradual transition to clean-energy technologies.”

The bill does not clearly address trucking’s role in the cap-and-trade program, and it fails to “harmonize” the different paths being taken by the Department of Transportation and the Environmental Protection Agency with regard to heavy trucks, said Glen Kedzie, environmental affairs counsel for American Trucking Associations.

The National Highway Transportation Safety Administration is currently studying setting fuel economy standards for heavy-duty trucks, while EPA is collecting diesel greenhouse gas emissions data through the SmartWay program.

ATA is hopeful the two agencies will ultimately work together toward a single fuel efficiency standard as they plan to do for automobiles and light trucks, Kedzie said.

The good news is that the legislation, for the first time ever, formally recognizes EPA’s SmartWay
program, giving the agency the power to expand the program, Kedzie said.

Kedzie said the big concern in the trucking industry is that the cap-and-trade bill will increase costs for refineries and other oil producers, who will pass along their costs for carbon emissions.

That, in turn, is almost certain to cause an increase in the cost of diesel fuel, Kedzie said.

“Now you’re just adding another layer of uncertainty into the mix,” Kedzie said.

Transport Topics, 6/29/2009

 
Long Road To Recovery
Monday, 29 June 2009 00:00

State of Logistics Report paints a bleak picture, warns of capacity shortage when demand picks up.

It’s the economy. That’s what jumps out from the numbers and analysis in the latest edition of the Council of Supply Chain Management Professionals’ State of Logistics Report.

The report, issued on June 17, examined supply chain performance in 2008, a year unlike any since the late Bob Delaney began producing the annual scorecard 20 years ago.

The headline number was positive: Logistics costs fell to 9.4 percent of GDP in the U.S., the lowest percentage since 2004 and a drop from 10.1 percent in 2007. Look closer, though, and that performance was less impressive than it seems.

Most of the improvement came from a recession-induced drop in interest rates, which cut the cost of holding inventory. And while companies rushed to liquidate inventory as the economy headed south, sales dropped even faster. The inventory-to-sales ratio soared from 1.25-to-1 in June to 1.46-to-1 in December, the sharpest jump since 1982.

Rosalyn Wilson, author of the State of Logistics Report, said the increase was “an unwelcome sign,” one of several that began in mid-2008 and have continued into this year. “Retailers and manufacturers are finding it difficult to draw down their inventories to match sales, and that trend will be a persistent problem well into 2009,” she said.

For supply chains and the broader economy, last year encompassed two starkly different periods—before the recession, when the bubble economy was still going strong, and after, when credit and confidence dried up.

“At the start of 2008, I never would have predicted a 13 percent reduction in inventory carrying costs,” Wilson said.

Inventories declined in each of the year’s last four months, and the cutbacks continue. “Businesses are clearing out inventories at a rate not seen for 30 years,” Wilson said.

The cuts are magnified by caution by manufacturers and retailers in replenishing stocks for sales that are likely to remain slow.

Despite weak demand, transportation costs rose 2 percent last year. The increase in transportation spending may sound good for carriers, but it came from higher fuel costs, not from base rates, which remain depressed. Fuel costs dipped later in the year, but they’ve begun to inch back up as crude oil prices topped $70 a barrel in recent weeks.

So what’s the story for 2009 and beyond? As in 2008, it’s the economy.

Wilson agrees with many economists that there are early stages of a recovery, but that it will be slow and halting and that unemployment will get worse before it gets better. Consumer confidence is starting to recover, and government injections of capital have bolstered financial markets, but household wealth has shrunk and credit remains tight,

GDP contracted by 5.7 percent in the first quarter of 2009, and is expected to drop another 2 percent in the current quarter, before edging into positive territory during the last two quarters of this year.

Transportation represents the biggest slice of supply chain spending. It’s a buyer’s market, with demand weak and capacity high. That will continue until the economy picks up, Wilson said.

“Even when volume picks up, carriers will have difficulty raising rates, because nobody wants to pay more,” she said.

Some carriers have spoken hopefully about an increase in freight volumes as companies are forced to replenish inventories. Wilson said some inventory rebuilding is likely later this year or early in 2010, but that this year’s summer-fall peak season isn’t shaping up as a strong one.

When demand does return, there will be a shrunken transportation and logistics industry to handle it.

Transportation and warehousing industries shed 265,000 workers in the first five months of this year. More than 3,000 motor carriers went out of business last year, reducing capacity by 7 percent. Because truckload carriers are primarily small, Wilson said, their bankruptcies, closings and mergers have been less visible.

“Operating in these market conditions is trying even for the best-run trucking companies,” Wilson said. “Many are reducing the size of their fleets, which will pull still more capacity out of the industry.”

Other transportation modes also have cutback. Railroads have furloughed staff and idled equipment. Container ship lines may be in the worst shape of all. They face the likelihood of several years of severe overcapacity as they struggle to fill large ships ordered earlier this decade when capacity was tight and demand was rising.

Wilson and others suggest that when inevitable recovery occurs, it could come quickly—and that companies that aren’t ready could find themselves short of transportation capacity

“The first place we’re going to see it is in truckload transportation,” said Clifford Otto, president of Saddle Creek Corp., the Lakeland, Fla.-based warehouse and distribution center operator. If the recovery is gradual, motor carriers should be able to restore capacity in time to meet demand, Otto said. But he said a sudden rebound could produce capacity shortages, and “those people that haven’t managed the relationships on both sides are going to pay a price.”

Paul Avampato, vice president of process design catalyst at Kraft Foods North America, said transportation volume would recover more quickly than capacity “The last time we went through this, it was about two or three years before transportation (capacity) caught back up,” he said.

While carriers face rough going in the short term, the outlook is mixed for warehouses and distribution centers. Operators that merely “have a big building where people store stuff” will struggle, but companies that have transitioned into cross-docking and value-added logistics services will do well, Wilson said.

The industry segment with the brightest future may be forwarders and other non-asset-based providers of third-party logistics services. Logistics providers—carriers, warehouses and others—are branching into new fields to attract new customers and to hang onto existing ones seeking to outsource.

“This sector is weathering the economic downturn better than asset-based companies are,” Wilson said. “3PLs are in a good position. Companies are looking for end-to-end services, and the 3PLs are better at looking end to end.”

Journal of Commerce, 6/29/2009

 
Showdown on the Highway
Monday, 29 June 2009 00:00

Competing plans by legislators, White House set up a battle over transportation agenda in Washington

A bare knuckles brawl over control of transportation policy and hundreds of billions of dollars in highway and intermodal spending is raging in Washington, and it’s only in its first rounds.

“It boils down to whether they all have the political will.”

The fight pits a powerful senior member of Congress and his allies against the administration and agenda of a popular president. It’s Democrat against Democrat, and it may evolve into a battle between the House and Senate. At stake is not only how many federal dollars will flow to states but a major reorganization of the U.S. Department of Transportation and a reorientation of federal policy.

At its heart is a sharp debate over how to pay the nation’s mounting transportation infrastructure bill— whether through fuel tax hikes, highway tolls and public-private partnerships or a vehicle mileage tax—in the long term while keeping the Highway Trust Fund solvent this summer.

Whoever wins will create a broad federal transportation policy that would be more intermodal than ever and would dovetail with emerging economic, environmental and energy priorities. That much is clear. What isn’t clear is how soon that policy would be in place, or how to fund it.

Some members of Congress are racing to complete a surface transportation bill before the current law expires Sept. 30, but the Obama administration is saying, “What’s the rush?” It wants to plug in a quick fix for the Highway Trust Fund through a temporary authorization and hold off on major policy decisions.

That’s largely because the administration has other priorities this summer, including health care, climate change and the economy. It also, many suspect, would like to delay debate over a gas tax hike to take a longer look at the many methods, all of them potentially painful politically, under consideration to pay for needed infrastructure improvements. The Obama administration said it opposes raising fuel taxes during the recession.

The House Transportation and Infrastructure Committee, led by Chairman James L. Oberstar, D-Minn., laid down its marker June 18, when Oberstar and Rep. John Mica, R-Fla., the ranking Republican on the committee, introduced the Surface Transportation Authorization Act of 2009.

The bill, the first highway reauthorization legislation introduced this year, runs more than 700 pages and calls for $450 billion in spending, 36 percent more than the $286.4 billion appropriated by the last surface transportation bill. The widespread derision in the public arena for that bill’s earmarks raises the political stakes for the follow-up bill, and the inadequate funding for freight projects in that earlier bill raises the stakes in the new measure for shippers and their carriers.

Transportation Secretary Ray LaHood has spoken of the need for strong investment for freight needs, including better connectors to ports, and the DOT co-hosted a summit this spring with the Department of Commerce on the needs of supply chains. But beyond opposition to an increase in the federal fuel tax and a vehicle miles tax, the administration has not gone into many details about prospective freight initiatives and has pleaded for patience on funding questions,

Industry groups praised the new House bill for its bold multimodal and intermodal vision, but before they had time to study the details, LaHood offered a counterproposal. He wants to extend the 2005 surface transportation act for 18 months, make “critical reforms” at the DOT, and replenish the Highway Trust Fund, which the White House said may go broke as soon as August.

“Unacceptable,” Oberstar said. “We don’t have time for 18 months. That puts a Damocles sword of uncertainty over the future of transportation.”

Oberstar said a delay would sow uncertainty among states and discourage them from major projects that would have a big economic impact. Without a steady source of revenue to pay for large-scale, multiyear projects, states would be forced to concentrate on short-term efforts they could complete with money at hand.

Delay also would nullify the gains in employment from the American Recovery and Reinvestment Act, Oberstar said. Instead of creating 6 million new jobs, there could be a net loss of 1 million.

However, key Senate Democrats responded favorably to LaHood’s proposal, including Sen. BarbaraBoxer, D-Calif., chairman of the Environment and Public Works Committee, which will be responsible for drafting the Senate’s highway spending legislation. In April, Boxer announced her bill, “Moving Ahead for Progress in the 21st Century” or MAP-21, was in the works, but her committee has released no specifics.

Boxer said she was “pleased that the White House is being proactive in working with the Congress to address the shortfall in the Highway Trust Fund. . . The proposal will. . . give us the necessary time to pass a more comprehensive multiyear transportation authorization bill with stable and reliable funding sources.”

The condition of the Highway Trust Fund is the pivot point in the transportation debate.

Last month, LaHood told congressional leaders that the trust fund, the mainstay of transportation revenue for 50 years, was going be $5 billion to $7 billion in the red by August.

It would be the second consecutive year the fund fell short. Last September, Congress approved transfer of $8 billion to the Highway Trust Fund from general revenue.

The simplest fix for the trust fund is another general-fund infusion. Congress also could raise the federal tax on gasoline and diesel fuel, the main source of trust fund revenue, but the administration opposes raising taxes while the country is in economic recession.

A DOT spokeswoman said the department is working on other ways to replenish the trust fund, but did not have any details.

LaHood’s proposal caught Oberstar by surprise, said John Horsley, president of the American Association of State Highway and Transportation Officials.

“I think he muddied the waters,” Horsley, a former DOT official who lived through several highway bill battles. “He said we need a series of reforms built into the interim funding measure. I think the House and the Senate are going to say ‘no thank you’ to that.

“What we need is a way to keep the highway program from collapsing in August. That’s a very simple bill that transfers enough resources to keep it going.”

The highway fund’s shaky status makes this year’s debate different from previous reauthorizations, he said. In the midst of what’s always a lengthy and detailed legislative process “we have this funding crunch,” he said. “This is the first time we’ve faced it—last year and this. This is something that’s out-of-the-ordinary that’s got to be dealt with, but it shouldn’t interfere.”

Tell that to Oberstar and LaHood. No one’s blinked yet in this game of chicken on Pennsylvania Avenue.

“If you were Jim Oberstar, and you just spent the past two years putting together this proposal, would you throw in the towel?” said Timothy P. Lynch, senior vice president at American Trucking Associations. The ATA, like many lobbying groups with a stake in the funding battle, is backing the chairman. But Lynch sees no easy way to break the face-off with the White House.

“We hope Mr. Oberstar will continue to push, and we’ll be there with him, but we have two committee chairs over in the Senate agreeing with LaHood. I don’t know how you would move a bill,” Lynch said.

He said he believes LaHood has the support of Boxer and Sen. Jay Rockefeller, D-WVa, chairman of the Senate Commerce Committee. However, a spokeswoman said Rockefeller had made no statement yet on the transportation proposal.

Lynch suggested more uneasiness than has been voiced publicly about the bill’s $450 billion price tag. “It comes down to the money. If you’re not willing to support an increase in the fuel tax, then your only option is to extend the program and not endorse any increases. I think that’s where the administration is, and frankly there’s more than a few members of Congress who are in the same place,” he said.

It’s understandable that LaHood and the administration would want to buy time, Lynch said. There are still vacancies in the ranks of political appointees at the DOT, the senior managers who would determine transportation policy. If that weren’t enough, one only needs to look at the headlines to see the administration’s priorities: healthcare reform, education reform, climate change, and guiding the economy out of the recession, to name a few.

“If you’re satisfied with the way the program currently operates, then it shouldn’t bother you to have an 18-month extension,” he said. “If you don’t think the program is working well—and we are in that ategory—waiting 18 months to affect the kinds of changes that the (House committee) proposal does is not good policy.”

Others question if, after two bipartisan congressional commissions issued extensive reports on transportation policy and finance, 18 more months of debate is needed.

“We don’t need the purgatory of delay through another 18 months,” said Peter Ruane, president of the American Road and Transportation Builders Association. He “wholeheartedly” disagrees with the administration’s proposal, “and they know it.”

The proposed extension “was a deliberate attempt to disrupt the process, and we don’t find it helpful,” he said. “The breadth of the congressional calendar is no excuse to put this off. They can find away to do this. It all boils down to whether they all have the political will.

“I think Chairman Oberstar is dedicated to getting it done on time, and it’s our job to help him,” Ruane said.

And Ruane believes Boxer’s Senate bill will probably be more like Oberstar’s than many people might expect. “Chairman Oberstar has tremendous respect from all the leaders in the Senate,” he said.

“I’ve been told they’re going to use large portions of the ideas that the House has come up with. They’re going to build on it; they’re going to enhance it. Obviously they’ll have their own twist on it,” he said.

Despite Boxer’s comment on LaHood’s proposal, which some saw as a clear endorsement of delay, “We think there is strong interest on the committee to move forward,” he said.

Whether Sept. 30 is the finish line or simply the first milepost, there is still a long road ahead, Lynch warned. “This bill has some very interesting ideas in it,” he said, but “the fine print is going to define a lot what people ultimately think.

“This is a bill that goes through a lot of twists and turns before it’s enacted,” Lynch said.

Journal of Commerce 6/29/2009

 
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