It’s hardly news to anyone involved in international trade today—higher fuel costs are driving up rates for all modes of transportation—and there doesn’t appear to be any end in sight. Add to that the worsening congestion on the nation’s highways, new federal regulations like the Hours-of-Service (HOS) rules and tougher EPA standards for diesel engines, not to mention trade volumes that are expected to continue growing in the double-digits, and it’s not hard to feel a little pessimistic.

Yet, even though transportation providers and shippers alike have resigned themselves to the current situation, many have begun rolling up their sleeves and donning their thinking caps to uncover efficiencies and productivity gains, both big and small, to keep supply chains running and businesses competitive.

Taking a beating at the pump

“Fuel prices continue to escalate,” acknowledges David S. McClimon, president, Con-way Freight (www.con-way.com). And while they’ve come down a bit since Hurricane Katrina, they’re still high and likely to get higher, he says. For shippers, that means ongoing fuel surcharges. But the difference now is that they’re being “blended in” with the total transportation cost, explains McClimon. “Not only are customers reviewing the line-haul and pickup and delivery costs, they’re now considering fuel surcharges as part of the total landed cost.”

Con-way Freight tries to absorb some of the higher fuel costs rather than passing the entire burden onto shippers, and in doing so has begun to mine for ways to reduce its own fuel consumption. “Firstly, we’re restricting the speed of the tractors—they don’t go over 65 mph. We have idle restrictions too, such as not allowing tractors to idle more than five minutes. We also have a very aggressive tire inflation program; just like cars, we make sure they’re properly inflated. Even the aerodynamics of the tractor can make a difference in fuel economy—air shields, roof ferrings, cab extenders, and things like that.” Synthetic lubricants and fuel additives also help get more miles per gallon while helping to extend the life of the diesel engines, he adds. Another component is the drivers themselves. “Just training the drivers on how to properly shift and drive so that they're efficiently maximizing the power of the tractor can reduce fuel consumption,” McClimon explains.

Nonetheless, the new EPA rules mandating the use of cleaner burning engines starting next year will likely offset some of these gains. Not only is the price of a new engine going to go up by about $7,500 a piece, which is nearly a 10 percent increase of the total cost of an engine, notes McClimon, it’s probably going to be less fuel efficient too. Con-way Freight began testing a few of the new engines in June to monitor fuel economy, power, and speed. But, “we’re expecting to see a degradation in fuel economy,” says McClimon. There’s also going to be higher maintenance costs, he notes, due to the type of ceramic filtered catalytic converter that’s used in the new engine. And if that’s not enough, the new engines also require the use of low-sulfur fuel, which results in poorer mileage.

The cost of congestion

The more insidious costs are congestion—partly because they’re difficult to quantify and partly because there’s not much a single carrier can do about it. Furthermore, it’s turned into a one-two punch when combined with rising fuel costs, explains John Miller, vice president of One-Way Operations, Schneider National (www.schneider.com).

“Fuel’s already high enough,” says Miller, but traffic jams make it worse. “One, you lose productivity because you can’t move, and two, you’re burning up fuel and using up driver hours.” The congestion issue gets exacerbated by the Hours-of-Service rules and other driver-related issues, he says. For starters, drivers are getting fewer paid miles because of the congestion, because most of the over-the-road drivers are paid by the mile. Furthermore, newer drivers are hardly eager to drive in heavily congested areas, while the more experienced drivers know that fewer miles means less take-home pay. “This contributes to the driver turnover issue,” adds Miller.

Driver turnover along with driver shortage has plagued the industry for a while, especially for truckload carriers. Admittedly, “not too many 22-year-olds are coming out of college and saying, ‘I want to be a truck driver,’” remarks Con-way Freight’s McClimon. The company has responded with some internal initiatives, such as using its own driving school to train drivers and putting new drivers through an apprentice program that gives them four months of experience at the company’s expense. In addition, Con-way Freight’s drivers are home every night and the company works a five-day operation, which also contributes to retaining drivers.

But congestion is also affecting service, according to Miller. “It’s significantly more difficult to predict your ability to hit a tight delivery window. Many customers have a half-hour window, and that’s tough in some areas,” he says. Chicago is one example. The reconstruction project taking place on the Dan Ryan Expressway—one of the nation’s busiest expressways, which links downtown Chicago to the city’s South Side—means drivers sometimes take 3 hours to get from one side of town to the other. “How can a driver even begin to predict when they’re going to arrive at the customer’s warehouse or what they’re going to run into?” asks Miller.

Even the federal government is becoming more active in the congestion issue. In May, U.S. Secretary of Transportation Norman Y. Mineta unveiled a “blueprint” for federal, state, and local officials to tackle the problem. The National Strategy to Reduce Congestion on America’s Transportation Network is still too new to evaluate its effectiveness, but industry executives are cautiously optimistic that it will help ignite some changes. “There have been times when everybody’s been able to get together and move things forward,” says Miller. Unexpectedly, one month after Secretary Mineta unveiled the plan, he announced his resignation. With a change in leadership, even the best-case scenario probably means the plan will lose some momentum, at least initially.

Finding solutions

Schneider National’s Bill Matheson, vice president/general manager, Intermodal Services.

The current situation has prompted carries and shippers both to look harder for ways to trim operating costs and stay competitive. And, while some view the Hours-of-Service rule as mostly adding to overall costs, it has forced shippers to be more mindful about how they utilize a driver’s time. “Shippers are doing a better job with having their loads ready and available on time,” notes Con-way Freight’s McClimon. “They’re also giving us more specifics on where the freight is going, how much room it’ll take up, and the weight. This in turn helps us do a better job in planning.” More sophisticated software and technology is also making it easier to optimize loads. “We use it to help reduce empty miles on the truckload side of our business,” says McClimon. Shippers are using software to marry loads from two different locations going to the same consignee, thereby saving both time and money.

“We’re also in favor of longer combination vehicles in areas where we can pull triple-trailers instead of doubles,” adds McClimon. “If you have two tractors pulling three trailers each, you’ve just removed one entire truck from the road.”

Meanwhile, Schneider National is looking into other alternatives, such as staging loads outside of congested areas then hiring a third-party driver who is more familiar with the area to navigate the local roads.

Rail is also providing some relief, points out Schneider National’s Bill Matheson, vice president/general manager, Intermodal Services. The ports are becoming more fluid, he says, with more boxes moving inland to free up space, more money for infrastructure improvements, and more emphasis on the use of on-dock and near-dock rail.

But while the nation’s rail network is no longer in danger of experiencing the meltdown that occurred several years ago, reliability is still an issue, says Matheson. “Although the railroads have just kept up with the onslaught of increased demand, they have not kept up to the point where they’re able to offer reliable service, and that’s an important distinction,” he points out, adding, “I don’t anticipate reliability to significantly improve within a three-year horizon. I just don’t believe they’re going to invest in infrastructure and capacity quick enough to get ahead of that curve.”

Matheson also says that ever since the Staggers Rail Act of 1980, which deregulated the railroads, is has really put the focus on private investment as the primary means to expand capacity. “Market forces are ultimately going to dictate what gets invested into the business,” he says. “With that dynamic, what I believe is going to happen is that demand is going to continue to exceed supply and there is going to be a continued lag effect. Furthermore, as you look across the various rail groups—coal, agriculture, industrial products, automotive, and intermodal—what you see is that all of the shippers are clamoring for more capacity. What’s essentially happening is that the railroads are having to divert capacity across those lines of business based on what they anticipate their future needs to be, and that’s going to be very tough when everyone is vying for that capital dollar.”

The mantra: ‘minutes matter’

The scope and scale of the problems facing the road and rail industries are overwhelming, indeed. But according to Schneider National’s John Miller, “The bottom line is: minutes matter.” He says, “In our organization alone, if we can find a way to give back 20 minutes of driving time to every driver on a daily basis, across an entire year, that’s the equivalent of a few hundred more drivers and thousands of more loads.” This really amounts to a fairly simple effort, yet it yields substantial results. “Little things like saving a few minutes during pickups and deliveries, getting in and out of our own shop facilities quicker, spending less time looking for a place to take a break—it all adds up. Almost anyone who comes into contact with a driver in one day can find a way to give him back one minute.”

Sidebar: The Government Gets Involved

In May, the Department of Transportation unveiled its National Strategy to Reduce Congestion on America’s Transportation Network, which will serve as a “blueprint” for transport officials at all levels of government to cut traffic jams, relieve freight bottlenecks, and reduce flight delays.

The cost of congestion is mounting in the transportation industry, and shippers are likewise feeling the pain. Some examples, according to the Department of Transportation, are as follows:

• A national retailer that keeps $2.5 billion worth of merchandise on-hand recently added 10 days of “buffer stock” to its inventory due to increased delays. This buffer stock cost the retailer $2.7 million annually.
• A computer chip manufacturer advanced its last shipment departure time 2 hours ahead for outbound shipments through Portland International Airport due to increased afternoon peak congestion on area roads.
• An Atlanta area distributor of pet food with an 11-truck fleet finds it difficult for one truck to make more than 12 daily deliveries; in 1984, one truck made as many as 20 deliveries each day.
• In 2005, congestion at the Otay Mesa and Tecate crossings along the California-Mexico border was estimated by the San Diego Association of Governments to cost the U.S. economy $3.7 billion in output and almost 40,000 jobs.
• In 2000, Global Insight, an economic forecasting firm, estimated congestion at the Ambassador Bridge between Detroit, Michigan and Windsor, Canada cost motor carriers between $150 million and $200 million.

The “Six-Point Plan” contained within the Department of Transportation’s national strategy blueprint, available online at http://isddc.dot.gov/OLPFiles/OST/012988.pdf, includes six areas of emphasis, among them are relieving urban congestion; unleashing private sector investment resources; promoting operational and technological improvements; establishing a “Corridors of the Future” competition; targeting major freight bottlenecks and expanding freight policy outreach; and accelerating major aviation capacity projects and providing a future funding framework.

Will this federal plan really make a difference? “That’s the $64,000 question,” replies John Miller, vice president of One-Way Operations, Schneider National. What is different this time, however, is the level of awareness and the willingness to do something about it. Too, human nature is such that people often times don’t make changes until the situation becomes unbearable. Most would agree, that the time is upon us.