On Second Thought
with Tom Nightingale
Recently, a headline, “Intermodal Surpasses Carload for the First Month on Record,” caught my attention and I thought, “Wow, for what might be perceived as a slow-moving industry, there is definitely change going on around us every day.” The change is evident in what we have seen in modal shift.
As companies fight to be nimble and take advantage of cost-savings opportunities while balancing those with service and capacity availability, modal expertise and the ability to buy across all modes continues to stress the average transportation buyer.
Case in point: Intermodal. Intermodal is a great example of this phenomenon. It has been one of the fastest growing sectors in the transportation industry; gaining traction as a fuel-efficient and low-cost alternative to truckload. As rail networks ebb and flow, varying service levels force shippers to strike a balance between intermodal and truckload. With different pricing models, fuel surcharges, times in-transit, and blocking-and-bracing requirements, switching modes is not as easy as flipping a switch.
Having said that, this is not just another piece in American Shipper about the rise of intermodal; this is about the importance of modal shift to a transportation function within a company.
Mode-diversity enablement. Not every company has the resources to monitor data and effectively make decisions as to which mode provides the most appropriate level of service as compared to the need and the true landed cost for each mode available. Nor do they have long-term relationships with multiple transportation partners to negotiate great rates and ensure dependability. With the number of modal options and the complexity of pricing a wide variety of providers, even the best transportation management professionals armed with top-notch software, will find it difficult to keep pace with all the changes.
Agility in transportation mode selection requires the ability to understand when and how different modes are most effective, procurement across multiple modes and carriers, and technology to automate and monitor performance. To broaden their knowledge and execution capabilities, some companies will hire more staff, others will turn to technology, and some will hire 3PLs who are experts across all modes. Finding the right solution is an individual company’s choice and can be motivated by culture, cost, headcount restriction and IT bandwidth. But doing nothing is not an option.
The roadmap. As transportation professionals consider their options, I would suggest the following actions and considerations:
Transportation network analysis—Do you or your 3PL have the tools and expertise to collect and analyze data and shipment characteristics? Determining patterns in shipment volume, weight, frequency, and lane density will help you understand which portions of your volumes could benefit from modal shifts. Using modeling software, benchmark current state to alternative solutions, pricing, and peer groups to help determine if change is beneficial. Include simulated scenarios showing the impact of mode shift during peak period, the consolidation or expansion of carrier partnerships, and other criteria to help ensure change is possible.
Multi-modal procurement—What is the experience level of your procurement team to find, evaluate, and negotiate rates for intermodal and multi-modal transportation options? Do you currently have relationships with the necessary carriers and experience across modes?
Leveraging the experience, tools and volume-driven rates of a 3PL can improve the likelihood of success in the area of mode procurement. By outsourcing transportation procurement, you gain access to qualified carriers with large volume rate structures and ready access to capacity for reliable service.
Transportation management systems—If you have successfully completed steps one and two above, you then have to look toward execution. Do you have the support of a Tier-1 transportation management system (TMS) with specialized freight capabilities? Do you need to add to or upgrade your current TMS? Does your IT team have the bandwidth and experience to tackle such a project?
If you are going to capitalize on modal-shift, make sure your TMS can handle:
- Carrier and rate management—Load carrier information, rates, service areas, contact and insurance information for quick rate comparison, payment and claims processing.
- Optimal load analysis—Compare modes and carriers to find the most cost-effective method to move individual shipments. When set up properly, the TMS will automatically identify opportunities to consolidate shipments, switch modes, and change carriers to minimize miles, costs and carbon dioxide emissions.
- Accurate carrier selection—Using rate, service and routing guides, the TMS will select the right carrier, regardless of mode, to ship your freight.
- Visibility and tracking – The TMS should have connectivity between all supply chain partners at origin, carrier, transfer points and destination to easily integrate communications and seamless data flow.
Many factors continue to drive change in transportation professionals’ daily work; the job has never been tougher or more complex. Preparation for a changing world begins with understanding emerging alternatives to current strategies. Agility to pivot from one solution to another comes from an experienced team with knowledge of when, how and who to conduct modal shifts for performance improvement. As intermodal and other modes emerge as viable alternatives for transportation, “luck favors the prepared mind.”
Nightingale is vice president of transportation at GENCO, a FedEx company. He can be reached by email.
This column was published in the August 2015 issue of American Shipper.