SPECIAL REPORT: 23rd Annual Conference on Transportation Innovation and Cost Savings
By JACK KOHANE
November 9, 2009
It was all about lean and green logistics at the 23rd Annual Conference on Transportation Innovation and Cost Savings held recently in Toronto.
Billed as one of Canada’s premier educational events for shippers and supply chain practitioners, the invitation-only conference is hosted by Montreal-based law firm Lande & Langford, which specializes in transportation law. This year’s event drew 250 delegates spanning the supply chain from major truck carriers to big-box retailers, from food and beverage suppliers to automobile makers.
Leading off on a positive note was David Newman, senior vice-president and equity research analyst for transportation and aerospace at National Bank Financial in Toronto. In his presentation, titled Railroads Gathering Steam on the Road to Recovery, he remarked that the trough in the economic downturn is behind us. “Economic cycles play out like waves on a beach, and while some are more ominous, they, too, will pass,” he assured the audience.
Mr. Newman pinpointed some overt signs of recovery, spotlighting encouraging news about freight volumes from the U.S.-based Institute for Supply Management New Orders Index, which measures manufacturing (new) orders. “Comparing the ISM New Orders Index to the Cass Freight Index (compiled by Cass Information Systems tracking industrial shipment activity), we note a six-to-nine-month lagged correlation between the year-over-year changes in each index, implying we could see some reversion in volumes with the improvement in declines in new orders witnessed in early 2009,” he said.
Mr. Newman advanced his views by stating that these indexes show a clear indication of a pickup in freight volumes. “And year-over-year as we move into the fall period, the comparisons are going to be positive versus the dark days of last fall,” he said. “Beyond economics pie-in-the-sky, it is actually playing out at the ground level, with volumes picking up across the board, from port to inland and at cross-border crossings, for both truck and rail.”
Comparing and contrasting the respective health of truck and rail, Mr. Newman told delegates that rails are less sensitive than other modes to downturns. “Productivity improvements (in rails), as well as a diversified customer base, especially with less exposure to economically sensitive sectors (e.g. bulk), have helped rails offset some volume weakness.” On the other hand, he continued, rails are becoming increasingly exposed to the economies of the Pacific Rim, decreasing their effective exposure to North America (e.g. CP – about 40 per cent of business is now global versus 25 per cent in 2002). “Rails have focused on improving operational efficiencies during the recession, particularly in the yards, to be better prepared when volumes pick up once again.”
According to Mr. Newman, it’s been a tough go for both rails and for trucks. “Though the recovery will be slow, we can all look to better days,” he nodded.
One carrier already basking in the glow of a brighter day is CN Intermodal Group, whose retail service today rates as one of the continent’s most extensive and reliable, using rail for the long haul and trucks for pickup and delivery at the shipper/receiver’s door. CN Intermodal terminals and CNTL trucking hubs across Canada and the U.S. allow CN to reach 75 per cent of the population of Canada and the U.S., with delivery within an 800-kilometre radius of CN’s intermodal terminals within 24 hours. CNTL boasts more than 800 owner-operators, plus a fleet of 6,000 chassis and 6,000 containers.
With its U.S. terminals located in New Orleans, Jackson, Miss., Memphis, Chicago and Detroit, and a Canadian web that includes facilities in Halifax, Moncton, Montreal and Toronto in eastern Canada, while the West is served by hubs in Winnipeg, Saskatoon, Edmonton, Calgary and Vancouver, CN’s domestic intermodal hubs, or intermodal terminals, are the key component of the entire network.
James Cairns, CN Intermodal Group’s assistant vice-president of intermodal and ground transportation, said his enterprise is one of Canada’s largest door-to-door trucking companies, delivering over 1,200 loads per day.
In his presentation, New All Rail Transborder Intermodal Corridors Connecting Canada, the U.S. and Mexico, Mr. Cairns spoke of a “strong vision for the future of ground transportation.” It is his quest, he said, to continue to expand CN WorldWide transportation and distribution capabilities across the U.S. and Mexico to reach more than 200 million people, offering local drayage, truck brokerage, intercity full load delivery, container yard storage and door-to-door intermodal delivery.
“There is now a confluence of four conditions that create the ‘perfect storm’ for Domestic Intermodal,” Mr. Cairns concluded. “While it is estimated that an average of 1,000 U.S. trucking companies went out of business for each quarter of 2008, with failures expected to pick up as fuel prices increase, there has also been a dramatic and measurable service improvement with the Class 1 Railroads. Not only does speed provide more competitive transit times for shippers, it also creates capacity.
“As well, highway and infrastructure congestion issues will not be resolved in the short term – and the solution is not to put more traffic on the road. Congestion at border crossings between Canada and the U.S. gives rail the advantage over truck. The rising cost of fuel makes intermodal more economical as fuel is a smaller percentage of intermodal’s total expense compared to truck. Lastly, rail has the green advantage over truck.”
Mr. Cairns expressed confidence that CN’s Domestic Intermodal service has a bright future, much of that driven by businesses opting to operate in an environmentally responsible way. “Using rail for long hauls and truck for shorter distances is much more efficient than relying solely on trucks,” he said. “There will be economic benefits of adopting a green transportation solution.”
Building the business case to go green, Doug Tozer, CEO of the Wheels Group, a leading third-party logistics provider headquartered in Mississauga, Ont., emphasized that the main impetus for greening the supply chain stems from consumers who continue to push for more environmentally friendly products and services, and retailers who continue to demand better recycling solutions.
“Manufacturers need to innovate and discover better solutions or risk being left behind,” he cautioned. “Sustainability is often assumed to be about being green or good. But in business it is more than that. It is also about being profitable and perpetual.”
Mr. Tozer’s thought-provoking presentation, peppered with current enviro-buzzwords pollution, sustainability, the 4Rs (reduce, re-use, recycle and re-purpose), also zeroed in on what he called the “closed-loop green solution.” In modelling the concept, he used a “closed-loop” supply chain to recycle products containing steel.
“The supply chain includes the manufacturer, who proposes to supply their product with a price that includes a deposit for recycling (e.g. pop bottle deposit/return) – in this case a metal product,” Mr. Tozer detailed.
Retailers will sell the product at market price or lower with their normal margins but now have a greener product to offer their consumer clients. Once the product containing the steel is “worn out,” it is returned to the retailer, or to a designated location for a deposit return. These designated locations will be metal recycling yards chosen because of practical access. The product will be broken down and prepared for shipping back to the original steel mill that supplies the manufacturer, thus closing the loop among supply chain partners, allowing everyone to leverage the value of securing recycled raw material at a standardized and lower cost base price.
This model isn’t very different from today’s practices except that it is “co-ordinated” between supply chain partners as a “closed-loop” system, Mr. Tozer said. A closed-loop cycle can be applied to green logistics management of any product or category, he said, adding that the Wheels Group has been developing closed-looped supply chain networks on behalf of its clients for quite some time.
“Being a non-asset third party often allows us to provide the collaboration and holistic piece within our four walls but deliver the value to all supply chain partners,” he said. “As well, if you have something new and leading edge it brings more passion to think beyond the norm.”
New and leading edge at this year’s conference was the Canadian General Freight Index, just launched by Nulogx Inc., a Toronto-based transportation management solutions company. Scott Irvine, the company’s vice-president of business development, said that the CGFI is the one index that tracks freight prices in Canada. “It is generated from a database of over three million truck freight transactions and $1 billion in spend,” he said. “Results include data from over 100 operating entities and almost 1,000 carriers. Its benefits are that it can help you compare your company to the market out there.”
According to Mr. Irvine, the strengths of the CGFI (www.cgfi.ca), which was developed with the assistance of Dr. Alan Saipe of Supply Chain Surveys Inc., are that its information is reviewed monthly for validity and customers can contribute data in exchange for detailed analysis. Although the public has access to high-level information, Nulogx customers receive more detailed analysis in exchange for contributing their data to the index.
Its limitations, Mr. Irvine noted, include: the information is restricted to “general over-the-road freight”; it excludes bulk, liquid and other specialty transportation services; and it does not separate the contract versus the spot markets.
Overall, the CGFI (published the last Wednesday of every month) is a useful tool that can be used to benchmark performance, develop operating budgets, and assist in negotiating agreements, Mr. Irvine touted. “It enables buyers and sellers of transportation to make important decisions based on facts not previously available. It offers a good statistical estimate of actual market behaviour, highlighting changes in the prices paid for freight transportation by Canadian shippers.”
In a question-and-answer session following his National Bank Financial presentation, Mr. Newman remarked that this year’s conference should help participants in the supply chain better understand the industry from a bottom-up “grassroots” perspective as well as a top-down “macro” perspective. “This allows us to identify the key trends, opportunities and challenges facing the industry. It’s a great venue for meeting with people from the industry, establishing contacts and hopefully longer-term relationships.”