Driver Shortage Squeezes Already-Tight Capacity

It’s no secret that the recession had a serious impact on capacity – with the Internal Revenue Service reporting that as many as 3,000 carriers were forced out of business during 2008 alone – a less talked about story is the continuing shortage of drivers impacting current capacity.  Not only is there a serious driver shortage throughout the nation’s trucking industry but also, proposed changes to federal regulations threaten to make the problem worse.

The Council of Supply Chain Management Professionals (CSCMP) reported that the industry lost about 150,000 driving jobs during the recession, or more than 12 percent of the total number of drivers.  Factors in drivers leaving are due to retirement, new federal regulations and the industry’s need to add 400,000 drivers to accommodate post-recession spikes in demand.  Plus, a recent report by the American Trucking Association found that driver turnover rate is as high as 79 percent at some larger carriers.

In addition to recessionary cutbacks, reasons for the driver shortage include:

  • Aging workforce:  CSCMP reports that roughly one in six drivers are over the age of 55, and less than one quarter are under age 35.
  • Competition within Industry:  Shortage of drivers is resulting in companies increasing pay and benefits – which in turn has caused drivers to jump from carrier to carrier.
  • Proposed Federal Regulatory Changes:  Washington has issued proposed regulatory changes – under the auspices of improving highway safety and weeding out bad drivers – that industry officials say would have a net effect of forcing more drivers out of the workforce.  Among the federal government’s proposals:
    • Hours of Service Reduction:  The government would limit drivers to a 14-hour workday and reduce driving time to 10 hours from the current 11.  The Federal Motor Carrier Safety Administration has also proposed mandatory breaks and rest periods.  The trucking industry claims that these provisions will result in added costs and the need to bring on even more drivers, at a time when current drivers are in short supply.
    • CSA:  Though it is a Compliance, Safety, Accountability initiative, FMCSA has proposed new standards for driver safety and vehicle maintenance.  FMCSA is proposing to expand on current practices already in place.  The industry believes that the new changes are burdensome and impractical and will have little impact on the agency’s stated goal of reducing accidents.

How is your business looking to combat capacity shortages?  Do you maintain your own fleet or are you speaking with your logistics provider on maximizing linehauls for your shipments?

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U.S. Visitors from Mexico and Canada Face New Entry Tariff

Mexican and Canadian visitors to the United States are going to find that the price of admission has just gotten a bit steeper, thanks to a new $5.50 tariff that will be assessed on all visitors arriving by air or sea.

The new fee is the result of a U.S.-Columbia free trade deal, which was passed by Congress and signed into law by President Obama in October.  According to the CBC, the trade deal includes a clause “that removes an exemption from the tariff for travelers from Canada, Mexico and the Caribbean.”

Canada and Mexico had been exempt from the fee, per the 1997 North American Free Trade Agreement (NAFTA).

The new fee has raised the ire of consumers and government officials alike.

“Raising taxes at the border just raises costs on consumers,” said Canadian International Trade Minister Ed Fast.  “Canadian officials have raised concerns about the removal of the exemption at the highest level.  We will continue to raise Canada’s concerns with U.S. lawmakers.”  In addition, U.S. Rep. Bill Owens (D-NY) announced that he will introduce legislation to repeal the fee.

Imposition of the fee comes at a time when the joint Beyond the Border Working Group, established earlier this year by President Barack Obama and Prime Minister Stephen Harper, is attempting to finalize agreements on key trade and security issues.

U.S. officials suggested that budgetary pressures warranted the change.  “The elimination of the exemption was necessitated by the budget situation in my country,” said U.S. Ambassador David Jacobsen.  “It is paid by American citizens and foreign nationals alike, just like Canadian citizens and non-Canadian citizens pay fees at Canadian airports.”

According to the Watertown (NY) Daily Times, the Congressional Budget Office estimates that the tariff will raise “about $1 billion from 2012 until 2012.”

What do you think about this?

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Strong Canadian Dollar – an Opportunity for U.S. Retailers?

The U.S. dollar held strong competitive advantage over its Canadian counterpart for more than 30 years – with that it became standard among Canadian consumers for U.S. imports to cost more.  Recently, the Canadian loonie has achieved parity with the U.S. greenback presumably making U.S. goods less expensive on the Canadian market – many are scratching their heads wondering why prices have not fallen.

While explanations vary from smaller market, higher distribution costs, different labeling requirements and higher taxes among those often cited – others point the finger at retailers who are plain old reluctant to lower prices

As more consumers become aware of the Canadian currency’s increased buying power, many are speculating it is only a matter of time before Canadians look online to find their desired U.S. goods – but at a better cost.  In a report, marketing analyst Lindsay Meredith said if Canadian retailers don’t reduce prices to reflect the new economic reality, “they’re just going to lose a lot of business to the American guys who are going to have a field day picking up the action.”

In the same report, CTV reported that a shopping cart full of U.S. goods purchased in Canada, cost significantly higher than when the identical items were purchased in the U.S. – an average of 20.4 percent more.  “Sample items included a pair of cargo shorts sold from the Gap, which were priced 15% higher in Canada, as well as a Blu-Ray copy of ‘The King’s Speech,’ which was 28 percent cheaper in the U.S.”

While analysts predict the price discrepancy will disappear in the coming months, others are offering what may turn out to be the best advice of all to Canadian consumers.  According to Consumers Association of Canada President Bruce Cran, “there are two things consumers can do to protect themselves.  One is to buy across in the U.S.A., and the second is haggle.”

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Supply Chains have Enhanced Post-Recession Value Survey Finds

A recent survey of  supply chain and logistics professionals found that 89 percent of respondents believe that the supply chain function has become more important to their organization than it was prior to the recession.

The survey, sponsored by logistics industry research/analysis group eyefortransport, was conducted in September 2011 as a way to gauge perception about the role of supply chain management in the post-recession business environment.  As the survey findings make clear, businesses are increasingly realizing the value that a well-planned and well-managed supply chain can have on their bottom line.  In fact, supply chain management has become such a tier one issue, that 56 percent of respondents said that the supply chain function either has a seat on their board, or will within the next two years.

Katharine O’Reilly, eyefortransport executive director summed up the survey findings by nothing that:  “…[O]ne of the best weapons companies have is their supply chain, and the people who run it.  Their views are always of note to smart business owners.”

This survey would seem to support collective wisdom among business professionals that (a) cost efficiency and streamlined processes are key to life in the post-recession and (b) moving forward will mean learning from mistakes of the past.  As Detlef Trefzger of Germany’s Schenker AG put it:  “People are more focused and committed to solutions.  Before the recession we discussed strategies with our customers that were nice to talk about but never implemented.  That has changed.”

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Supply Chain Component Needs Consideration in Demand Management Processes

In its simplest form, demand management refers to the process whereby businesses utilize various indicators to forecast customer demand, and align its supply chain to meet those projections.  Now obviously there is no guarantee that demand management is going to be successful every time, but for many businesses, it has proven to be a reliable way to manage inventory and planning systems.

While some have likened demand management to “management by crystal ball,” the concept is actually quite complex, and involves the synchronization  and integration of many different parts, with technology being the glue that holds everything together.  A recent survey by Griffin Strategic Advisors, reported on by Supply Chain Management Review, found that just about half of businesses believe that their supply chain is adequately integrated with their technology function.  In fact, 25 percent of survey respondents said that they were not integrated at all.

This is particularly important, since responsibility for demand management most often falls to the supply chain function.  According to the Griffin survey, demand management responsibility tends to be assigned as follows:

  • Supply Chain – 33 percent
  • Operations – 21 percent
  • Sales – 18 percent
  • Procurement – 14 percent

So while businesses are increasingly assigning responsibility for the demand management function to supply chain managers, they are generally not taking steps to provide the visibility/technology necessary to evaluate all of the business’ moving parts.

Another surprising finding of the survey, only 17 percent of respondents said that their logistics/transportation function was “very involved” in demand management.  As the survey authors point out: “Regular input around supplier issues, capacity and mix, transportation or warehousing constraints, for example, are invaluable for a solid demand plan.  Similarly, logistics needs accurate and timely input to execute against the demand plan.”

Businesses that fail to factor logistics and transportation into their processes could be in for quite a surprise.  The transportation industry took quite a hit during the recession, with an estimated 3,000 carriers either absorbed by larger companies or forced out of business altogether.  This contraction in capacity, along with a serious shortage of drivers, could cause some businesses to have trouble locking in service.

Businesses that find demand management to be most helpful are those that integrate all functions into the demand management process – especially logistics and transportation.  By ensuring that all areas are looped into the process, a business can help ensure greater efficiency and results.

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Automotive Aftermarket Suppliers Need to Identify Logistics Efficiencies

Results from the Automotive Aftermarket Suppliers Association’s (AASA’s) quarterly “Supplier Barometer,” indicate strong concern among suppliers about higher manufacturing and fuel costs.   According to Steve Handschuh, president and COO of AASA, “all of our Q2 2011 survey respondents reported they experienced raw material prices increases over the last 12 months,” and while most reported price increases of 5 percent to 29 percent for raw materials, a significant number reported increases of more than 150 percent.

These findings are cause for concern among aftermarket suppliers.  News of the cost increases comes on the heels of what has been a very interesting period for the industry.  First, the aftermarket was able to withstand the negative fallout of the economic recession – largely due to cost-conscious consumers choosing to maintain their older vehicles.  The aftermarket also weathered uncertainty as a result of the earthquake and subsequent tsunami that struck Japan during March.  The disruptions to the automotive supply chain had a worldwide ripple effect, but the aftermarket was able to escape largely unscathed.

While the Japanese disasters have not had a major impact on the automotive aftermarket, a significant portion of Barometer respondents have “had to deal with parts shortages and seek alternative suppliers,” explained Paul McCarthy, AASA vice president of industry analysis, planning and member services.

With these issues on the horizon, the one certainty seems to be an interest in cost cutting and internal efficiencies.  Manufacturers will naturally be looking to their supply chains for savings. As suppliers do look to streamline logistics costs and improve efficiencies, here are a few things to keep in mind:

Customized Solutions are Key: A good provider will be able to offer a customized logistics solution that addresses a manufacturer’s unique business needs, which generally means that shipments travel more efficiently and seamlessly.

Keep it Local: If you’re sending a shipment of parts to Canada, doesn’t it make sense to use a logistics provider that has experience in the Canadian market – a provider that can ensure that shipments won’t be delayed at the border, and will arrive on-time at their Canadian destination?  This sounds obvious, but a surprising number of businesses trust their shipments to carriers with minimal experience, only to pay the price later with inordinate delays and unexpected fees.

Out of the Box Thinking could mean Big Efficiencies: A post-recession supply chain check is a good time to match your current operating procedures against current industry trends to make sure you’re taking advantage of different options.

  • Distribution Center Bypass: Logistics providers are increasingly able to skip unneeded distribution center stopovers by taking advantage of increasingly connected distribution networks.  Direct-to-store transit also means that suppliers can maintain leaner inventories.
  • Inbound Freight Management:  Take control of your transportation spend by managing logistics for all incoming shipments.  By centralizing logistics planning, a business negotiates service agreements with a logistics provider, and utilizes that provider for all incoming shipments.  A business is no longer beholden to the costs and delivery schedule of a transportation provider selected by a supplier.

AASA’s recent Barometer Survey made clear that aftermarket professionals are quite concerned about both short-and-long term economic factors.  By taking the time to evaluate its supply chain, a business could easily put in place new logistics practices that could result in measurable efficiencies and savings.

Is your business within the automotive aftermarket?  Are you concerned about the future economy.  Share your thoughts and opinions here.

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Bug-Free Pallets Could Add to Border Delays

Until recently, shipments entering the United States from Canada were exempt from a requirement that all wooden pallets be treated for bugs prior to arrival at the border.  But now, the U.S. Animal And Plant Health Inspection Service (APHIS) is proposing to end that exemption, claiming that more than 320 million Canadian pallets cross the border each year, bringing the threat of bug infestation that poses a risk to U.S. agriculture and forest safety.

While APHIS’ proposed change is still in draft form, it has generated backlash on both sides of the border.

The Canadian Food Inspection Agency (CFIA) responded by issuing its own recommendation — to eliminate the pallet-treatment exemption currently extended to U.S. shippers.

Today’s reported that the government of Canada has urged APHIS to delay implementation until at least 2013, warning that the new rule would “have serious consequences for Canada-U.S. trade and North American competitiveness.

And trucking officials have raised concerns about the added delays that would result, as agents would be required to inspect each pallet.  The Canadian Trucking Alliance (CTA) expressed concern that the changes not be implemented until an adequate supply of treated-pallets is accessible – which is currently not the case.  As reported by Canadian Transportation&Logistics, CTA CEO David Bradley wrote to APHIS, stating that:  “CTA has seen too many examples in recent years where new measures affecting the border have been rushed, only to be withdrawn at the 11th hour when it became apparent that they were unworkable.  Let’s just take the time to get this right.

In addition to delays, there is concern about the costs of complying with the pallet-treatment mandate.  The Canadian Wood Pallet Association estimates that it will cost $2(Canadian) per pallet for treatment, for a total of about $300 million (Canadian).

U.S. border agents will begin notifying non-compliant shippers of the rule change in the coming weeks, with actual enforcement to be phased in at a yet-to-be determined date.  For shipments headed north to Canada, the new requirement will be phased in beginning this year, with full compliance expected by the summer of 2012.

Which side of the issue is more important to you, reduced delays or environmental concerns?

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Canada Gets High Marks from World Bank

Every year, the World Bank releases an “Ease of Doing Business” analysis, which ranks 183 different countries based on certain economic indicators.  In its most recent “Doing Business 2011” report, Canada was ranked number 7 for “ease of doing business,” with Singapore ranked number one, and the United States ranked number five.

The rankings are based on several economic indicators, intended to provider a snapshot overview for potential entrepreneurs interested in starting a business, and for businesses seeking to expand their global customer base.  Key indicators, along with U.S. and Canadian rankings include:

The Commerce Department reports that less than one percent of U.S. businesses are exporters, despite the fact that 70 percent of the world’s purchasing power is located beyond U.S. borders.  Based on Canada’s high marks from the World Bank, businesses might want to consider looking to Canada as a source of new business opportunities.  To help get you started, you might want to check out the U.S. government’s website, which has detailed information available that is specific to export opportunities in the Canadian market.

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U.S. Customs’ Internal Assessment Program – Right for your Business?

Businesses that regularly import goods into the U.S. face the possibility each year of being selected for a Customs and Border Patrol “Focused Assessment.” What is a focused assessment?  Quite simply, it’s an audit.

Each year, CBP selects importers and conducts an exhaustive review to ensure those businesses are in compliance with all CBP controls, regulations and mandates.  As you might expect, the audit process can be exhaustive, costly and time-consuming.  Fortunately, there is a way to avoid having your business entered in the audit lottery – CBP’s Internal Assessment Program.

The Internal Assessment Program was introduced in 2002 as a way to facilitate the border clearance process for importers that have maintained a consistent record for compliance with all Customs mandates and regulations.  In exchange for agreeing to stringent internal controls and self-assessment protocols, IAP participants are exempted from Customs audits, and can also avoid costly and time-consuming inspections.

Interested businesses submit an application to CBP, and then successfully complete a rigorous review process.  Among the requirements necessary for consideration:

  • Business must be a member of the Customs-Trade Partnership Against Terrorism (C-TPAT) program.
  • Must be a resident importer with at least two years experience.
  • Must agree to comply with all applicable Customs regulations.
  • Must have detailed records of prior compliance with Customs regulations.

The Internal Assessment Program is very popular with importers anxious to avoid the rigors of a CBP audit.  It’s also a way to send a signal to customers and associates that your business has significant risk management and internal controls in place – strong enough to pass muster with the federal government.

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Seven Top Questions to Ask to Create an Efficient Supply Chain

According to the bellwether Institute for Supply Management, April marked the 23rd consecutive month of overall growth for the U.S. economy.  In addition, the ISM reported that the U.S. manufacturing sector is in the midst of 21 months of economic expansion.  But despite this positive news, many businesses remain unconvinced that the economic recovery is here to stay, and have taken a very cautious approach to planning and investing in the future.

Not surprisingly, businesses are taking a hard look at their supply chains, with an eye to finding efficiencies, correcting past mistakes, doing things smarter and hopefully cutting costs.  And, with logistics costs accounting for as much as 5-8 percent of revenue, it’s a good place to look.

As you consider changes to your supply chain – be they minor tweaks or a major switch in operations – here are a few questions to keep in mind:

  1. Scalability – Is my Supply Chain Flexible Enough to Adapt to the Ups and Downs of the Business Cycle? You know the highs and lows of your business better than anyone – and hopefully your logistics provider is a close second.  But does your logistics provider allow you to ramp up your level of service when needed, and then scale back, or are you locked into strict service levels?  If you find that your carrier does not allow you the flexibility you need, you may want to shop around.
  2. Range of Options – Why Pay Express Service Prices when a Shipment isn’t Urgent? Many businesses unknowingly are paying for higher levels of service than their shipments actually need.  Sometimes this is inadvertent, and sometimes it’s because a carrier offers a “one size fits all,” “take it or leave it” logistics solution.  Make sure your carrier has the capability to offer various services and delivery options that meet your business needs.  Do not pay for more service than you need!
  3. Customized Solutions – Can your Logistics Provider Work with you to Solve your Specific Logistics Needs? The logistics industry has advanced so much in recent years that it is no longer acceptable for a logistics carrier to offer inflexible, “out of the box” solutions.  Instead, a good logistics provider will work with you to understand your business goals, integrate your business processes, and offer you a customized solution.
  4. Customer Service – Is there Someone to Call when Things go Wrong? In the rush to cut costs and integrate technology, many logistics companies farmed out their customer service function to automated call centers and centralized 800 numbers.  As a result, businesses increasingly have no one to turn to when a last minute change needs to be made to a supply chain, or when a mistake or breakdown occurs.  The good news though, is that some logistics carriers still understand the importance of person-to-person relationships, and take great pains to ensure that customer service remains a priority.  When it’s the middle of the night, and you’ve got a problem with a top customer’s shipment, you’ll be grateful that you took the time to choose a logistics provider that values customer service.
  5. Cross Border – Can my Logistics Carrier Accommodate Shipments to Canada?  U.S. businesses are increasingly seeing the potential of tapping into Canada, with its 32 million potential customers, and comparatively strong economy.  It’s important to realize though, that as close as Canada may be on the map, there is a tremendous regulatory maze to clear before your goods can enter that market.  In fact, the U.S./Canadian border clearance process has gotten even more complicated in recent years, with each country introducing new security mandates and technology standards to supplement compliance requirements already in place.  It is absolutely essential that you choose a logistics carrier that has bona fide experience with cross border logistics.  An experienced carrier will provide flawless compliance with all required paperwork, and move your shipments seamlessly into the Canadian market.
  6. Think Out of the Box – What about Taking Charge of your Suppliers’ Shipments, or Shipping Direct to your Customers? As you look to improve supply chain efficiency, it’s important to put every current “best practice” under the microscope and ask if there isn’t a better way to get the same result.  For example, if your business depends on multiple shipments arriving from multiple vendors/suppliers, would it make sense for you to take control of those shipments?  An inbound freight management system would allow you to streamline operations and cut costs by choosing the transportation provider to carry all your inbound shipments.

    Another way to cut costs and improve efficiency might be to eliminate a distribution center stopover from your supply chain.  Many businesses find that they can shave days from their transit schedules by eliminating a costly and unnecessary distribution center stop, and send shipments directly to their end destination.  Not every logistics carrier can offer DC Bypass, but it’s worth the time to find a carrier who can.

  7. Returns ManagementDoes My Supply Chain Maximize the Bottom Line Impact and Customer Service Opportunities of Well-Managed Returns? Two facts to keep in mind:
    1. found that as much as $100 billion worth of goods are returned each year to U.S. companies, a figure that can represent as much as seven percent of a company’s gross sales.
    2. The 2007 National Shopping Behavior Survey, conducted by KPMG LLC financial advisory company, found that 58 percent of consumers said that a company’s returns policy was a factor in their decision whether or not to shop with that retailer.

    With this much at stake, it’s essential to have in place a returns policy that ensures customer satisfaction, and that also allows you to recover some of the costs associated with replacing goods and returning unused goods to inventory.  Many businesses are realizing the value of repairing or refurbishing returned merchandise, and offering it for sale on a secondary market.  And of critical importance, businesses are realizing the importance of having logistics processes in place to guide the returns process.

Clearly, there is a lot to think about when considering changes to your supply chain, and many options for improving efficiency.  What are some of your top questions when shipping cross-border?  Ask away!

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