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Coping with the Capacity Crunch in Transportation

This special report on CLM Toronto’s Capacity Crunch roundtable is based on presentation provide by CLM’s distinguished panel of keynote speakers: Serge Carestia, Director of Operations and Capacity Planning, Canadian Tire, Jeff Moore, Managing Partner, Lakeside Logistics, Dan Einwechter, President, Challenger Motor Freight.

By Fred Moody

All sectors of North America’s economy are enduring an ongoing and growing transportation capacity shortfall that is encroaching on the efficacy of businesses to get their goods to market.

This capacity shortage covers the complete gamut of transportation modes, from surface and aviation to marine sectors. Even the quality of life in North America is being impacted by transportation congestion and gridlock in cities and towns, panel members told logisticians at the Council of Logistics Management’s (CLM) Toronto’s roundtable this fall.

Canadian Tire, which operates one of the largest private fleets in Canada, depends on its fleet to replenish its stock at some 452 stores across the country. Customer service is of paramount importance to Canadian Tire’s Serge Carestia, director of Operations and Capacity Planning. “We have a saying,” Mr. Carestia said. “If you cannot get the product in, you cannot get it out. So from that point-of-view, we look at capacity issues.”

The good news is that the crisis in capacity is forcing innovation to be part of the ongoing commerce between logisticians, third party providers (3PLs) and transportation companies.

“There is no turning back as the new reality is upon us, and we have to work collaboratively and effectively as a team to make sure we are an effective and strong trading nation,” stated Dan Einwechter, president of Cambridge Ontario-based Challenger Motor freight, and an executive member of the Ontario Trucking Association and the Canadian Trucking Alliance.

Jeff Moore, managing partner of Lakeside Logistics, in Oakville Ontario, also emphasized the impetus for change is virtually unprecedented during his tenure in the industry. “In the 18 years that I have been in business with Lakeside Logistics, this is the most critical issue that we have had to deal with in our history,” stated Mr. Moore. Lakeside, a non-asset based 3PL, has services that encompass a full range of logistics capabilities, from inventory management to cross docking and intermodal transportation.

One of the greatest industry challenges, consistently registered by each of the keynote speakers, remains the continual shortage of drivers in Canada and the United States. Canada presently employs an estimated 225,000 truck drivers who move up to 90 percent of consumer goods and foodstuff in Canada, according to Mr. Einwechter. The ongoing dearth of new entrants in this field is cause for concern, panelists stated, while pointing out there are fundamental changes in corporate attitudes and culture that should be changed to improve this situation.

Today, drivers are often required to wait at the U.S.-Canada border, sometimes without remuneration for these waits, and they face extra downtime during delays at receiving docks while waiting for their shipments to be unloaded. Mr. Einwechter noted that many drivers have had to contend with degrading treatment when facing such “out-of-service” circumstances. “In essence, don’t ask a driver to do something that you would not do yourself,” he advised delegates.

Canadian Tire has helped to improve trucker’s working lives. “We have built in a timeframe for setup when a driver is at a store,” Mr. Carestia said in reference to carrier deliveries. “And we have made this into something similar to what you would see with a manufacturer. When you’re in a work zone, you know how long it will take to manufacture a particular part. We have incorporated that same type of theory into our load-building and delivery (practices).”

As part of its program for carriers, Lakeside has developed a Key Performance Indicator (KPI) to help evaluate stellar performance and offer driver appreciation awards. “It might seem like a small thing,” said Mr. Moore. “But people like to be recognized for a job well done, and it’s paying off.”

Today, more than an estimated U.S. $1.2 billion in goods crosses the Canada-U.S. border daily, and delays have remained a prime concern since 9/11, even in driver recruitment. “Five or ten years ago, when you were driving down Toronto’s Queen Elizabeth Expressway (QEW) or the Highway 401 and you looked out the window, every other truck had an American address on it. Not today,” Mr. Moore told delegates. “In fact, many U.S. carriers are now advertising the fact in their recruiting advertisements that if you come to work for us, you do not have to go to Canada.” Security at the U.S.-Canada border brings traffic to a standstill on some days, “and that is putting a big crunch on capacity,” Mr. Moore emphasized.

In Ontario alone, 90,000 new drivers will be required by 2009, Mr. Einwechter said. While this is caused for considerable concern, Mr. Moore noted: “The driver shortage is really the tip of the iceberg” in attributing the capacity challenge across North America to changes that emerge on a weekly, yearly and day-in and day-out basis. For example, he referred to the disaster and disruption caused by hurricanes in the southern United States that created a huge and unforeseen demand for lumber and a resultant capacity squeeze.

Also, when railways face gridlock more capacity is taken out of the North American system, and this has been aggravated by the fact that a number of large railway companies have been cutting staff and equipment for several years, Mr. Moore point out. There are also heightened border security requirements, immigration legislation impacting the driver shortage, dramatic insurance hikes, new hours of services regulations governing drivers’ performance, and tough new emissions regulations.

The rise in insurance rates has also reduced capacity, panelists agreed. “Where we used to pay $30,000 for reinsurance, we now pay $600,000,” Mr. Einwechter explained, adding: “And we are a good carrier.”

Mr. Moore also alluded to the widespread and adverse impact of insurance rates: “I do not need to tell anyone what insurance rates are doing to our industry. The cost of doing business today in transportation is driving a lot of carriers, large and small, out of business.”

Panelists agreed, raising the stature of transportation providers on the corporate map of customers is of paramount importance in today’s environment. Shippers that demand excellence from their carriers should include these carriers in their decision-making processes, instead of calling on their expertise on an ad hoc basis.

Technology can also add value for carriers, suppliers and shippers alike. For example, Lakeside Logistics has created a website that enables carriers to see what shipments and lanes are available in a four-day forecast across North America, affording them with information about the origin and destination of goods, delivery dates and times. They can tag an order to deliver and receive an automatic confirmation about their job within minutes. In addition, carriers can enter their loads and equipment into this system and give the company’s logistics coordinators the ability to match client requirements with the needs of its supply partner. A driver can even determine the status of their invoice online at this site.

Canadian Tire has invested heavily in technology as well, dedicating ten years to the development of an integrated operations planning center, responsible for production planning and the daily dispatching compliance for that company’s entire supply chain. “We have a very robust forecasting engine, and logistics software, that we use to provide 26-week forecasts to all of our partners,” Mr. Carestia said, which provides information to manufacturers, stores and carriers. “We live and die by our forecasts and we leverage our operations planning centre to be able to go in and do an analysis and find potential bottlenecks and be proactive,” he added.

As a result, Canadian Tire is able to optimize its transportation operations with increased flexibility to meet spikes in demand, dynamically changing its network to accommodate a particular retail event to flow product with more ease and use additional capacity in the field.

This visibility in the supply chain enables Canadian Tire to forecast and measure, for example, the number of inbound containers from a particular point, and dynamically build capacity to for these containers. Visibility also enables it to plan and depict a powerful picture of its outbound requirements - the number of stores involved in a process, examining if a product should be cross-docked or sent directly to the store, or even consider a possible extension to the lead time.

Canadian Tire also uses its supply chain tools to partner with other industries. “We can see if we are picking up goods from the United States if we should partner with someone who is shipping to the States, and pickup on their backhaul, Mr. Carestia said.

In conclusion, Mr. Carestia summarily emphasized one the most salient points about today’s capacity crunch in transportation: “These problems are not going away, and we need to be able to leverage our technology and provide visibility.”