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LTL TRANSPORTATION PROCUREMENT

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Title: LTL TRANSPORTATION PROCUREMENT


1
LTL TRANSPORTATION PROCUREMENT
FIKES TRAFFIC SERVICES
2
LTL PROCUREMENT BEST PRACTICES
  • Use a standardized contract with all carriers
  • Provide 12 months of shipment data
  • Share any changes you are expecting to your
    shipment patterns or levels of business
  • Control your inbound shipments
  • Understand the differences between your inbound
    and outbound shipments
  • Examine the strategic options of using a base
    rate (industry or custom) versus individual
    carrier rate

3
LTL PROCUREMENT BEST PRACTICES
  • Understand your ability or limitations to
    implement complex pricing or routing scenarios
  • Determine type of RFP to conduct
  • Transactional Pricing
  • Reverse Auction
  • Combinatorial
  • Conditional
  • Establish pricing parameters for all carriers to
    use
  • How will discounts apply direct or indirect,
    inbound or outbound
  • Will FAKs (freight of all kinds multiple
    classes of freight being rated at one class) be
    used (single FAK, tiered, etc.)
  • Understand how your shipments compare to the
    marketplace
  • Determine your incumbent strategy

4
LTL PROCUREMENT PARAMETERS
  • Pricing Options
  • Base Rates or individual
  • Discounting
  • FAK Structures
  • Accessorial charges
  • Points of Service
  • How to quantify
  • Compliance
  • Additional Information
  • Quality Components
  • Information Technology
  • Value added services
  • Payment

5
LTL PROCUREMENT TECHNOLOGY
  • Use analytical tools that are designed for LTL
    transportation
  • Pricing
  • Transit Time
  • Weighting for other intangibles
  • Use tools that can
  • Award the business electronically
  • Download information into your existing systems
  • Save data for future use
  • Online tools should
  • Not treat LTL as a commodity
  • Be designed for the LTL shipping process
  • Be accepted by the carrier community
  • Be easy to set up and use

6
How is Online Procurement Changing the Process? -
Shippers
  • Reducing the cycle time
  • Data accuracy is increasing
  • Time Required to manage the process is reduced
  • Standardized questions
  • Ability to upload data files, pictures,
    documents, etc.
  • Selection of carriers to participate

7
How is Online Procurement Changing the Process? -
Shippers
  • Technology to analyze the carriers pricing
    responses at the lane level has increased
  • Technology to incorporate and analyze the
    carriers transit times is now available at the
    lane level
  • Shippers can use weighting techniques to analyze
    the responses and determine the best overall
    value
  • Incumbents
  • Claims ratios
  • Transit times
  • Shippers can analyze carrier response in minutes
    now instead of days

8
How is Online Procurement Changing the Process? -
Shippers
  • Shippers can award the business electronically
  • Shippers can download the carriers pricing
    responses into their applications which
    eliminates the need to load them by hand and
    increases accuracy
  • Shippers can retain historical data for reuse in
    future bids
  • Shippers see an increase in productivity,
    accuracy and useable information

9
How is Online Procurement Changing the Process? -
Carriers
  • Reducing the cycle time
  • Data accuracy is increasing
  • Time required to manage the process is reduced
  • Standardized questions are answered one time
    instead of multiple times
  • Ability to upload data files, pictures,
    documents, etc.
  • Bids are received by carrier pricing personnel
    immediately
  • The format of the bids are consistent and easy to
    work with
  • Analysis of the data by the carriers has
    increased

10
How is Online Procurement Changing the Process? -
Carriers
  • Pricing provided by the carriers is more accurate
    because of their ability to analyze a customers
    book of business
  • Pricing provided by the carriers can be simple or
    complex
  • Misunderstandings concerning pricing are reduced
  • Carriers receive electronic notification of the
    business awarded
  • Increase in productivity by carrier pricing
    personnel

11
LTL PRICING HISTORY
  • 1880-1930
  • Railroads provided the foundation for
    transportation growth
  • 1887 Interstate Commerce Commission established
    to regulate railroad rates/tariffs
  • Uniform Freight Classification
  • 1921 Federal-Aid Highway Act establsihed basis
    for federal government cooperating in highway
    infrastructure
  • Trucking connects railroad to communities and
    communities to each other

12
LTL PRICING HISTORY (cont.)
  • 1930-40s
  • Carriers mimic railroad pricing
  • 1935 Motor Carrier Act for interstate commerce
  • Pricing regulation protects shipper by providing
    pricing consistency
  • Carriers looks to printers for pricing
    requirements
  • Printers transition into regional rate bureaus
  • Regulation of entry/geography
  • National Highway System

13
LTL PRICING HISTORY (cont.)
  • 1950-70s
  • Federal Aid Highway Act of 1955 Interstate
    Highway System
  • Growth of regional LTL carrier companies
  • Carriers develop their terminal networks,
    operations expertise, and service schedules
  • Unionized LTL Teamsters National Freight
    Agreement
  • Intrastate and Interstate regulations
  • Standardization of rates and ratemaking through
    regional rate bureaus GRI (general rate
    increase) process
  • Rate bureaus received anti-trust immunity
  • Traffic studies initiated Dr. Edward Deming

14
MOTOR CARRIER ECONOMIC REGIONS 1950
15
LTL PRICING HISTORY (cont.)
  • 1980s New era of LTL Trucking
  • Motor Carrier Reform Act of 1980
  • Deregulation of LTL pricing
  • Elimination of intrastate pricing
  • Carrier geographic freedom
  • Customer specific pricing
  • Carriers issued private tariffs using bureau
    rates
  • Point name basing converted to ZIP codes
  • Computerization of pricing
  • Changing patterns of competitive business
    environment and increasing competition
  • Decline of unionized LTL trucking

16
LTL PRICING HISTORY (cont.)
  • 1990s
  • Changing patterns of supply chain distribution
  • Growth of regional and inter-regional non-union
    carriers
  • Pricing leadership transitions from bureaus to
    carriers
  • Widespread distribution of PC based rating and
    pricing tools
  • Carriers began to tailor their base rates to
    align with marketing, operational and financial
    strategies
  • Large shippers develop their own base-rates
  • 3PLs emerge
  • Bureaus counter with commercial products for
    benchmark pricing
  • ICC Termination Act 1995 Emergence of STB
    (Surface Transportation Board

17
CONTEMPORARY PRICING TRENDS - Carriers
  • Carriers conduct individual pricing GRI
  • Base rates receive increase based upon anlysis of
  • Lane cost
  • Competitive rates
  • Yield based pricing
  • Adjustments create 10,000-100,000 unique pricing
    lanes
  • Rates are directional and optimized
  • Specific increases targeted at class and weight
    groupings
  • Carriers use their own tariffs with small shippers

18
CONTEMPORARY PRICING TRENDS - Carriers
  • Carriers use foreign tariffs with midsize/large
    shippers and 3PLs
  • Other carrier tariffs
  • Custom developed shippers rates
  • Industry base rates CzarLite, Mars, Continental
  • Carriers manage several hundred tariffs across
    their customer base
  • Held rates, individual and foreign
  • Creates risk for lane performance
  • Held rates reflect the cost of historical
    transportation patterns
  • Increased cost for analysis and administration
  • Carriers use pricing technology to implement
    their lane cost into foreign tariff pricing
  • Alternative pricing systems are explored

19
CONTEMPORARY PRICING TRENDS - Shippers
  • Shippers seek to simplify the LTL pricing process
  • Custom individual rates
  • Use of a foreign base-rate
  • Perceived neutralization of carrier lane based
    pricing increase
  • Across the board discounts
  • FAK (freight of all kinds) versus actual class
  • Shippers want to incorporate LTL pricing
    throughout the business enterprise
  • Improved processes for analysis, planning and
    implementation
  • Reduced adminstrative cost and improved accuracy
    fir freight audit and payment
  • Financial reporting - Sarbanes-Oxley
  • Shipper ability to obtain pricing objectives
    constrained by carrier pricing power obtained
    through consolidation and capacity issues

20
CONTEMPORARY PRICING TRENDS Industry Tariffs
  • Industry benchmarks are maintained by traffic
    studies and industry profitability requirements
    are measured through the regional process
  • CCI (Carrier Cost Index) can be incorporated into
    GRI process
  • Carrier profitability measurement remains fixed
    at OR (Operating Ratio) of 94 or lower
  • Branded pricing benchmarks dominate the industry
    tariff market
  • Carrier capacity and strong economy create
    improved industry OR and softening of industry GRI

21
PRICE INDEXES
22
TRENDS IN THE LTL MARKETPLACE
FIKES TRAFFIC SERVICES
23
INDUSTRY CONDOLIDATION
LTL Carriers YRC Worldwide- Yellow Freight,
Roadway, USF, New Penn Estes/GI FedEx
Freight/Watkins UPS/Overnite Old Dominion/UW
Freight Vitran/Sierra West/Chris Truck
Lines Roadrunner/Dawes Transport Topics Top 100
Carrier List
24
INDUSTRY CONDOLIDATION
Increase in single source transportation
providers UPS FedEx YRC Worldwide Averitt
Express Logistics Providers DHL/Exel Kuehne
Nagle/USCO Technology Companies Oracle / J.D.
Edwards / PeopleSoft / G-Log SSA Global / Caps /
Arzoon
25
DRIVER SHORTAGE
  • Driver Churn
  • 2004 677,249 Active Motor Carriers
  • 2005 Applications for new motor carrier or
    broker authority totaled approximately 40,500
  • 1st Quarter 2006 Applications for new motor
    carrier or broker authority totaled only 11,800
  • Driver Turnover 2004
  • Carriers having over 30 Million in revenue
    experienced a 116 driver turnover rate
  • Carriers with less than 30 Million in revenue
    experience a 94 turnover rate
  • LTL carriers experienced a 20 driver turnover
    rate

26
DRIVER SHORTAGE
  • Currently 3.4 million drivers on the road
  • Trucking is predicted to grow from 9.8 billion
    tons in 2004 to 13 billion tons in 2016
  • Aging demographics 20 of all drivers are 55 or
    older
  • Construction wages outpace trucking by 9 since
    2000
  • Increased security and safety measures decrease
    pool of qualified drivers
  • These problems are exacerbated by
    hours-of-service and reduction of available hours

27
CAPACITY ISSUES Highways
  • Trucking Jan. 04-Jun. 06 Average capacity 90
  • Carriers are not adding capacity
  • Hours of Service
  • Carriers have pricing power
  • Highway Congestion since 1980
  • Increase in all interstate lane miles 16
  • Increase in all vehicle miles 123
  • Increase in all truck miles 100
  • Bottleneck delays over 250 million vehicle hours
    annually, costing exonomy 8 Billion

28
ESTIMATED AVERAGE DAILY TRUCK TRAFFIC
29
ESTIMATED PEAK PERIOD CONGESTION
30
MODES TRANSITION FROM VERTICAL TO HORIZONTAL
  • Truckload
  • LTL
  • Small Package
  • Air Freight
  • Railroad
  • Water
  • Inter Modal
  • Mode Shifting
  • UPS/FedEx LTL small package
  • LTL-TL
  • LTL/small package Air

31
EXPANDING SERVICES
  • Premium service
  • Guaranteed by a specific time
  • Guaranteed by a specific date
  • Deferred service
  • Dedicated equipment
  • Mixed mode (ground, air, ground)
  • Customer specific services

32
REDUCED TRANSIT TIMES
  • Reengineering of carrier operational networks
  • Technology
  • Shippers providing electronic shipment
    information
  • Carriers utilizing mobile communications tools
  • Automation of the rating process
  • Equipment reliability
  • Labor work rules

33
CHANGING SUPPLY CHAINS
  • Imported goods are shifting distribution models
  • Manufacturing imports 2006 40
  • 2010 projected 60
  • Increased complexity in customer routing
    requirements
  • Supply chain management will increase in
    importance from tactical to strategic
  • Longer supply chains
  • Capacity
  • Higher percentage of costs
  • Customers are demanding it

34
NORTH AMERICAN ECONOMIC REGIONS
35
TECHNOLOGY
  • Increase in single source technology providers
  • SAP
  • Oracle
  • SSA
  • Increasing use of technology
  • Mode selection TL, LTL, small package, pool or
    distribution points
  • Carrier selection
  • Labor reduction
  • Improved customer service/satisfaction
  • Inventory reductions
  • Technology platforms
  • Web enabled delivery
  • Flexible delivery or installation options

36
OUTSOURCING
  • Imported goods are shifting distribution models
  • Increased complexity in customer routing
    requirements
  • Outsourcing will continue to increase
  • Knowledge/Expertise
  • Technology
  • Cost Reduction
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