Comments and Letters

Suffering from dockworker disruption. Five lies the Ubers of trucking may tell. CP-NS acquisition railroaded from the start. Long-term suffering from dockworker disruption
   I enjoyed your “Knock-Knock!” Editor’s Note in the March 2016 issue. In your note, you say: “It’s a big mistake for shippers—both importers and exporters of containerized cargoes—to underestimate the dockworker unions’ ability to wreck their supply chains”.
   Quite correct, but the trouble is that the U.S. exporter is not the ultimate decision maker as to how to respond to U.S. port disruption; it’s the foreign buyers of our U.S. exports. They are increasingly aware that they can bypass U.S. port disruptions entirely by shifting sourcing to other countries. And those buyers don’t necessarily come back to the U.S. exporter when things calm down at our ports, in which case the impact of port disruption is to wreck the U.S. export supply chain permanently.
   Bottom line for the longshore unions—don’t take our export cargo for granted, your actions will impact the number of containers you and future generations of longshoremen will handle.

Peter Friedmann
Executive Director,
Agriculture Transportation Coalition,
Washington, D.C.


Five lies the Ubers of trucking may tell
   Since 2000, the transportation industry has seen many technology-focused startups come and go. With each failed attempt, investors lost millions of dollars and the industry showed little change because the following fact was overlooked: Successful innovation demands more than just whiz-bang technology, it requires a strong command of operations and a deep understanding of the industry.
   Today, a new crop of startups has emerged—including frontrunners like Cargo Chief, Transfix, Convoy and Trucker Path—and they are being hailed as the “Ubers of trucking.” These companies have flashy websites and mobile apps, but beneath the surface they leave us wanting more.
   The truth is, like the startups which failed before them, these businesses will likely be defeated by their inferior command of operations and surface-level knowledge of the industry.
   So before believing the hype, everyone (shippers and carriers, in particular) do yourselves a favor and learn about the five lies these new startups may tell you.
   Lie No. 1: An open (ahem… spot) marketplace benefits smaller shippers and carriers.
   Most of these startups are licensed freight brokers who try to differentiate by selling their services as a “marketplace.” They claim this benefits their target market—small-to-midsized carriers and shippers—but there are many reasons why an open marketplace does not actually benefit smaller players.
   These “marketplaces” contain mostly spot shipments—meaning freight that is typically last-minute or loads that incumbent carriers have rejected. With short lead times and irregular requirements, this type of freight can be extremely risky, especially for smaller carriers. On the shipper side, sourcing capacity from a spot environment leaves them highly susceptible to pricing fluctuations and unpredictable capacity, making it difficult to forecast efficiently.
   Lie No. 2: Carriers don’t need large shipper freight to be successful.
   The truth is: they do, but what they really want is a mix of large and small shipper freight.
   Eighty-eight percent of carriers own less than nine trucks, and the less equipment a carrier has, the more consistency they need from their shippers. That consistency can typically only come via a large source of freight, like an established shipper or 3PL, and due to the complexity of their supply chains, these players will never use a mobile app to find capacity.
   That being said, small carriers can benefit from having their access to the growth opportunity of a smaller shipper. That balance of large and small, consistent and growing, is the perfect growth formula for small-to-midsized carriers. Without the access to these large shippers, however, the “Ubers of trucking” can’t deliver for their target market.
   Lie No. 3: Relationships aren’t paramount.
   The “Ubers of trucking” pride themselves on being highly automated, and have downplayed the role of humans in our industry. While automation can increase efficiency and drive down costs, transportation is still an industry built on relationships. Successful businesses must have a strong foundation and a team of experienced logisticians to navigate exception management and relationships.
   Driver Dave Bush said it best in his comment on an article about Cargo Chief: “Do you ask your phone what to do with the four pallets that were rejected and put back on your trailer? How about that two hours of detention you need? When your phone says ‘no,’ I guess you just roll with that? Not a chance. This is a business that needs living, breathing people to run it.”
   Lie No. 4: Sharing assets in transportation is new and disruptive.
   The “shared economy” is an economic system based on consolidating and recycling resources. For some, this idea is revolutionary, but for the transportation industry it’s actually nothing new. The sharing of assets has been done with less-than-truckload/partial shipping, drop-trailer programs, and load boards for the last 20 years. Today, many of these startups claim to have “reinvented the wheel.” In reality, the transportation industry has been sharing for years, and the companies that execute these “sharing” services best are those which have built a solid operation based on a deep understanding of transportation.
   Lie No. 5: Standard compliance means stellar service.
   Many of these startups have compliance protocols in place (checking auto insurance, cargo insurance, safety rating, etc.), but there is typically not enough data or service history to allow for any real evaluation of the carriers they work with.
   Why is service so important to measure? Take Walmart, the largest retailer in the world, for example. Walmart has imposed up to a 3 percent penalty of total cost of goods per shipment to their suppliers for late deliveries. That means, without the help of an experienced carrier partner, shippers run the risk of racking up substantial penalties. An “Uber of trucking” can find a truck, but that’s only half the battle. With high stakes freight on the line, rigid appointment times from their retailer customers and zero room for error, simply having insurance and a safety rating will not suffice.
   These shippers need proven on-time percentages, high quality equipment, experienced drivers, and low claims ratings to be successful. While the “Ubers of trucking” boast about their efficient websites, and incredible cost savings, they forget that the most important thing is that without proven compliance processes and partners, freight does not arrive safely, on schedule or as required.

Robert Nathan
CEO, LoadDelivered Logistics
Chicago


CP-NS acquisition railroaded from the start
   In mid-April, Canadian Pacific Railway decided to abandon its very public attempt to acquire No. 4 U.S. railroad Norfolk Southern Corp.
   Although CP has “long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy,” the company saw “no clear path to a friendly merger,” said CEO E. Hunter Harrison.
   The announcement came after the U.S. Justice Department urged the Surface Transportation Board to reject CP’s voting trust petition, saying it would “fail to preserve the independence of the merging railroads” prior to regulatory review by the STB and “risk harm to current and future competition.”
   CP had courted NS for months, offering three separate cash-and-stock bids valued at around $30 billion. NS, however, was resolute, rejecting each of the unsolicited offers as “grossly inadequate.” In March, CP filed its petitioned with the STB for a declaratory order approving a voting trust structure that would have installed Harrison as CEO of NS during the agency’s review of the proposed takeover.
   The plan immediately drew the ire of several lawmakers on Capitol Hill, further dooming the proposed tie-up between the two rail giants.
   No one can fault CP for trying to expand its North American reach by acquiring NS. But the lack of U.S. regulatory appetite, as well as that of commodity shippers who worried a merger would cause further consolidation in the industry and lead to a decrease in competition and service levels, derailed this deal before it ever left the station. (Ben Meyer)