Truck hours, driver shortages, and chassis availability may delay some goods movement in the United States.
By Chris Dupin
Trucking and chassis issues are high on the list of concerns of logistics professionals in the retail industry for 2012.
“With the current administration and balance of power in Congress we continue to see more and more compliance issues affecting retail operational business models,” said Casey Chroust, executive vice president of retail operations at the Retail Industry Leaders Association. “Ultimately, there are more burdens and inefficiencies being pushed onto retailers and their business partners.”
The impact of the revised hours of service (HOS) rules for truck drivers that were announced on Dec. 22, the new Compliance, Safety, and Accountability (CSA) initiative that rates trucking companies on various safety-related metrics, and the decision by some container shipping companies to no longer routinely supply chassis for free to move containers from the marine terminals to retailers’ distribution centers, are all major changes retailers are grappling with.
While there was relief that the Federal Motor Carrier Safety Administration (FMCSA) decided in December to retain the 11-hour daily driving limit for truckers instead of a reducing it to 10 hours as it proposed a year earlier, retailers are still concerned about other changes to the HOS rules.
FMCSA said it kept the 11-hour time limit because of an “absence of compelling scientific evidence demonstrating the safety benefits of a 10-hour driving limit.”
The rule allows truckers to split that 11-hour driving period up during a 14-hour working day, but the new rule reduces from 82 to 70 hours the maximum number of hours a truck driver can work within a seven-day period.
Drivers must have at least two nights rest per week when FMCSA says their 24-hour body clock demands sleep the most — from 1 a.m. to 5 a.m. This rest requirement is part of a provision that allows drivers to restart the clock on their work week by taking at least 34 consecutive hours off-duty. And drivers may not work more than eight hours unless they have taken at least a half-hour break.
The National Retail Federation said it welcomed the decision to allow truck drivers to continue driving 11 hours a day, but expressed concern over a requirement for longer weekly breaks and the “34-hour restart” provision.
“Longer overnight breaks create the potential for more big trucks to be mixing with passenger cars during congested daylight hours,” said David French, NRF senior vice president for government relations.
“These new regulations will still drive up costs for businesses and consumers while making our highways and city streets more dangerous rather than safer. This is a case where something that might sound good on paper doesn’t work in the real world.”
He noted retailers regularly use overnight deliveries to avoid delays and greater safety risks during daytime traffic.
French said the NRF believes the new restart requirement will have a significant impact on retailers, especially those who rely on overnight or early morning deliveries.
It was expected that the rules may be challenged in court.
Chroust said the rules will affect retailers because their operations are built around “just-in-time supply chains and they have sophisticated distribution networks with trucking routes optimized down to the lowest levels. The new hours of service rules put more constraints on their routing models where inefficiencies will result.”
He agreed the rules will increase transportation costs, congestion and pollution by funneling more trucks onto the roads at peak driving times.
Chroust said the hours of service rules will affect retailers in rural areas where truckers must make very long hauls as well as those in urban areas where truckers contend with more congestion and traffic during daylight hours.
Jonathan Gold, NRF’s vice president of supply chain and customs policy, said the hours of service is linked to the general concern about a possible shortage of truck drivers.
“If you cut back on allowable driving time, you need more drivers to fill that gap, and I don’t know where those drivers are coming from. You are creating an even bigger driver shortage than currently exists.”
Retailers are also concerned about the federal government’s CSA initiative which makes Safety Management System (SMS) data available to the public.
The SMS looks at safety violations and groups them into seven “Behavior Analysis and Safety Improvement Categories” (BASICs). The BASICs are unsafe driving, fatigued driving (hours of service), driver fitness; controlled substances and alcohol; vehicle maintenance; cargo security; and crash history.
In November, FMCSA Administrator Anne Ferro told shippers at the annual meeting of the National Industrial Transportation League “you should use SMS BASIC information as a risk indicator of a carrier as compared to other carriers in the safety event grouping.”
She said “high BASIC percentiles indicate poor performance and high noncompliance with our safety regulations.”
She also noted CSA enables FMCSA and state partners to contact more commercial motor carriers earlier to correct safety problems and ensure compliance with safety regulations.
But there are some logistics executives who are questioning the usefulness of using SMS data to select carriers.
Tom Sanderson, the chairman and chief executive officer of the logistics company Transplace, and Henry Seaton, a Virginia-based attorney, argued the SMS data should not be used in the selection of carriers.
Speaking during a webinar sponsored by the investment firm Stifel Nicolaus, they said shippers could needlessly expose themselves to “additional vicarious liability and negligent selection lawsuits” and said it was “far superior to rely on the FMCSA, who is obligated by federal law to determine which carriers are fit for use for shippers and brokers.”
They contend that SMS scores themselves have no relationship to accidents per million miles and Sanderson said shippers “are not doing anything to improve highway safety by failing to use or refusing to use carriers that have this so-called ‘alert’ on one of the particular BASICs.”
Use of SMS data, he said, could harm small businesses, and they said the SMS methodology “is very unfair to the smaller carriers and the trucking industry’s lifeblood. Denying those carriers access to freight will exacerbate a capacity problem that we should all be worried about as shippers or as logisticians regarding how tight capacity is going to be in 2012. We do not need to needlessly drive smaller providers out of the marketplace.”
Chroust feels the project is well intentioned and a step in the right direction, “but there is a lot more work to be done to make the measures or scores useful.” He said RILA and other organizations have made suggestions on changes to the program to this regard.
“Chassis is another issue we’re paying attention to,” NRF’s Gold said. “Things seem to be in limbo. There was a lot of talk early on about carriers getting out of the chassis business, but I haven’t seen a whole lot of movement. Everyone is just trying to see how it will play out.”
“Chassis management is going to be one of the topics of much discussion this coming year, and will need to be decided fairly quickly for the sake of all parties involved. The two sticking points are who is going to manage it and who is going to pay for it,” Chroust said.
Just as the distribution models of retailers — how far distribution centers are spaced, for example — have been developed with the existing hours of service rules baked in, Chroust said a change in chassis policies by carriers may have wide-ranging implications for retailers.
For example, retailers may no longer be able to have some of their inventory in the dozens of containers surrounding their distribution centers or they may be forced to find someone to ride herd over their need for chassis.
Chroust said those costs are reflected in the contracts that retailers have today with carriers and if those services are no longer provided, then those costs have to be pulled out of the system so that retailers have the money to pay for chassis.
Many retailers are also gearing up to renew transpacific contracts in the next few months, during a period of uncertainty about freight rates and capacity. Carriers are estimated by London-based consultancy Drewry to have lost $5 billion in 2011, mostly in the second half of the year. The expectation is that shippers may seek to limit capacity to help increase freight rates this year.
Reductions in capacity, particularly by transpacific carriers, created difficulties for some retailers in 2009.
“I think what happened in 2009 reinforced the importance of strong partners with your carrier base. If you try to really take advantage of major price cuts and you go too far it will come back to bite you when the prices return and when there’s capacity shortages,” Chroust explained.
“Those retailers and shippers that took a longer term view of partnerships and worked with each other maybe had a much smoother year than those who didn’t.
“In any contracting situation, I think we need to keep partnerships in mind, and the objective is partnership and reduction in volatility,” he said. “Volatility is what’s more disruptive — it’s volatility in pricing and capacity that’s more disruptive than consistent high prices.”
“I know different retailers are treating contracts a little differently with that theme in mind. They are trying to reduce volatility, both in capacity, storage and pricing. So I think it does cause them to look out a little longer time period,” Chroust said with the result that some shippers and carriers are now looking at signing longer term contracts.
‘Multi-channel’ retailing
The multi-channel shopper — one who visits brick-and-mortar stores, uses catalogs, the Internet or telephone to make purchases — “is here to stay,” said Casey Chroust, executive vice president of retail operations at the Retail Industry Leaders Association.
He said retailers are finding shoppers who buy from them through more than one channel are likely to spend more with them.
But he said it’s important to give those shoppers a good, consistent experience when they use any of those methods to purchase goods.
“There are requirements on the front-end, the presentation layer, to make this happen, but there is even more work on the backend from a systems infrastructure and distribution network to make that concept a reality,” he said.
Retailers have to figure out how to appropriately manage inventory, and pick and ship single items (“eaches”) to customers’ homes instead of moving cartons of product to stores.
“From a fulfillment perspective there are a number of different choices that companies have to make when it comes to multi-channel,” said Patrick Ahern, a vice president at National Retail Systems (NRS).
“You have your very traditional model which means you send goods into a distribution center that distributes out to the store via truckload. That’s probably the most typical model,” Ahern explained. “There’s some type of schedule associated with those store deliveries and your goal is cube, utilization and service to the store. You want to make sure the store has the products, and you want to make sure the retailers scheduled their staffing for lowest cost at the store. You want to make sure the right people are there at the exact right time to unload that truck.”
Outlet stores are growing rapidly and have special requirements, Ahearn said. They’re often located in more remote geographies and may have a product — sometimes a less expensive item — that appeals to outlet shoppers. Some companies distribute those products through their regular distribution centers and transport routings, but some use delivery services with dedicated loops for the outlets.
Many retailers are also expanding overseas, sometimes with their own stores and occasionally selling through established retailers.
In some cases, it makes sense for retailers to ship directly from manufacturing locations in the Far East, for example, direct to where those stores are located, be it Latin America or Europe. But in other cases, Ahearn said it may make better sense for them to ship to a distribution center located in the United States or Panama, and perhaps to a distribution located in Foreign Trade Zone so that duty is not paid on goods that are re-exported.
To serve shoppers buying goods on the Internet, retailers are trying several different approaches, including national and regional fulfillment centers that focus on online purchases or outsourcing to third parties, Chroust said.
“A new trend that has emerged is retailers integrating online-fulfillment into their existing distribution centers,” Chroust said. That allows them to leverage their existing assets and puts them closer to the end consumer so that products can get the end consumer more quickly and at a lower cost.
“They are completely different models and if you are going to operate them out of the same facility, you have to be able to efficiently handle both models. It’s not easy to do,” he said.
“The material handling equipment is different” when stocking stores and filling e-commerce orders, Ahern added.
“You can picture in your head a million-square-foot warehouse and an individual having to walk those aisles to pick a white shirt. And then walk all the way back and put it in an overnight pouch. That doesn’t seem very effective, and it’s not,” Ahern said. “Today the model is the goods come to the picker, who stands on a platform and picks it. That really drives and increases efficiency.”
Ahern noted that many e-commerce facilities are also located adjacent to the facilities of parcel shipping providers to help drive down costs.
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