Collaborate or stagnate, transport CEOs warn, as congestion woes mount

Collaborate or stagnate, transport CEOs warn, as congestion woes mount

KANSAS CITY  Collaboration, an old word in supply chain management, is new again, as U.S. shippers struggle with systemic capacity shortages from West Coast ports to Midwestern truck terminals that threaten inland distribution as the holiday season approaches.

“When we talk to customers this year, the topic of conversation is how do they become a shipper of choice,” Jeff Silver, CEO of Coyote Logistics, said at the JOC Inland Distribution Conference Friday. “That’s fun to hear because for 30 years we’ve never heard that.”

As the U.S. economy expands at a faster pace, Silver and a panel of transportation CEOs said transport operators of all types are enjoying strong freight volumes, higher revenue and greater market leverage than at any time since the recession ended in 2009. But they warned that shippers must work closely with their transport partners to overcome capacity challenges or risk supply chain breakdowns if an event like last winter’s polar vortex occurs again.

“2014 is a tale of two stories,” said Timothy H. O’Connell, vice president of inland distribution for Maersk Line. “From a business perspective, volumes are up, but once freight is here getting it through the system has been a challenge, on the East Coast or the West Coast,” he said. “Just putting freight through the system has been a grind each and every day. It’s not one issue or two issues but a collection of issues that are combining right now.”

The critical issues identified by the panel include the chaos caused by chassis shortages at U.S. ports, slow and deteriorating service on U.S. rail lines and a lack of qualified truck drivers pretty much everywhere. “Even LTL carriers are having difficulty hiring drivers,” Robey (Rob) W. Estes, Jr., president and CEO of trucking company Estes Express, said.

“This is a real opportunity to work together on solutions that create that fluidity,” Maersk’s O’Connell said. “How do you create fluidity inside the (marine) terminal, at gates? There’s an investment that comes with that, but more than ever I’m hearing customers say ‘What can we do?’ It’s difficult, because they’re trying to keep their whole supply chain intact.”

“I’m encouraged to hear of the number of supply chain partners thinking about the end-to-end supply chain needs for our customers and how collaboration can help in execution,” Jeffrey LeClair, global logistics development manager for the global supply network at Caterpillar, said at the conference. True collaboration is about creating value, he said, and requires a shared enterprise-level vision and commitment to serving end customers.

One place shippers need much more fluidity is the rail network. “Rail service today in October is worse than it was this past winter,” Thomas Finkbiner, CEO of Tiger Cool Express, an intermodal refrigerated container service, said. Transit times are getting longer. Intermodal isn’t “truck +1 day” -- long the goal -- “its truck +2 and sometimes its truck +3,” Finkbiner said. “If you take a train through Chicago, you add 22 hours to the published rail transit time.”

Intermodal rates are rising despite the decrease in service, FTR Associates Senior Consultant Larry Gross told the JOC Inland Distribution Conference Thursday. He said service began to decline before last winter and won’t get close to historical norms until the first half of 2015. However, intermodal rates will increase and intermodal will gain market share, Gross said. That model is “unsustainable,” said Finkbiner. “It’s unsustainable to operate the railroads slower and slower and make more money,” he said.

“As a shipper who gives 51 percent of my revenue to the railroads, I want them to do well. But it absolutely infuriates me when I see every one of the seven Class I railroads operating in the 50s and 60s (in operating ratios), making a ton of money, and all but one railroad having worse service, more cars on line, more dwell time in the terminals, slower transit times.”

“I think from a (rail) service perspective this year has been terribly challenging,” O’Connell said. “I think we have seen some improvement in the overall network velocity, but it’s not back to where it needs to be. Stuff starts to stack up stack up stack up and you can never get ahead of it. That’s what we’re seeing in the Pacific Southwest right now.”

Historic levels of congestion at the Ports of Los Angeles and Long Beach hung like a cloud over the conference, raising concerns about the impact on freight movement through distribution centers and on transportation lanes thousands of miles inland. Hub Group on Friday blamed poor rail service for a third quarter intermodal volume loss. The intermodal operator had hundreds of boxes stuck in Los Angeles waiting for chassis during much of the quarter, President and COO Mark Yeager said during an earnings conference call. The deterioration in utilization effectively reduced Hub’s container fleet size by 10 percent.

Overall, the interconnected U.S. truck and rail transportation network is “maxed out,” said SIlver. “The smallest perturbation sends everything into chaos, as we saw in the first quarter.”

“The smallest ripple right now makes a huge problem,” O’Connell said. “There’s a lot of frustration out there but it’s a combination of everything that’s to blame  slow rail network, terminal congestion, the changing chassis model, changing truck driver hours of service.”

Solving those problems will take a combined supply chain effort, the CEOs said. “When the economy collapsed in 2008, everybody had to be smarter about how they ran their business,” said Silver. “They took every piece of slack out of their supply chain. Now we’ve got a little push for growth, and all these interruptions creating challenges. But I love those challenges. It’s a really cool time to figure these things out, and we all have to do it together.”

 

Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc