Navigating the Storm: Seasonal Impact to Source Transportation...

by David W. Doran – CornerStone Select, Inc.

Over the past year, we have heard that transportation is going through a period of a "Perfect S torm" - when demands on the transportation industry have created an environment where  the "Carrier is King." For many shippers, this has translated to increased rates, problems covering loads, lower service levels, and a feeling of lost control as they wait for the storm to pass. As fear of the uncertain has taken over, many have elected to wait and not pursue transportation sourcing activities as it may result in service upheaval and increased costs.

However, for companies that understand the transportation market, leverage their own freight profile, and incorporate a seasonal understanding of their sourcing strategy, there continues to be opportunities for a successful sourcing engagement - even in these stormy times.

First, although peak seasons for each transportation mode represent the market in its entirety, it does not indicate that every carrier is equally as busy or as fruitful. In fact, during 2004, there were nearly 1,200 bankruptcies in the truckload industry, and numerous changes in the LTL, small package, and international logistics markets through significant merger and acquisition activities. This has continued and may have accellerated in 2005. One can imagine the impact these fundamental changes have to the markets. Additionally, US corporations change their supply chain network by approximately 20% per annum. (This is measured on a lane by lane basis.) These changes interact directly with the carriers and continually impact each carrier's network by a representative percentage change.

How does this benefit you? By understanding these fundamental complexities to the carriers market, companies can read through the noise about the unilateral rate increases and understand that each carrier is different, and each shipper is unique - by marrying these attributes to a broad carrier base, there will always be a chance to capture savings by sourcing transportation.

Second, not all freight is the same - nor are all peak seasons. Many companies have counter-cyclical peak season cycles that are extremely beneficial to carriers. If you are not subject to the standard peak seasons (Home and Garden type retailers are an example of counter cyclical companies), then this freight is valued by the carriers and they will be willing to aggressively compete for the business. Carriers also react differently to shippers that don't have heavy quarterly, monthly, or weekly pushes to their shipment volumess. If there is ability to level-set these variations, carriers will react accordingly.

Additionally, there are significant variations by shippers in carrier communications, planning and forecasting, and delivery requirements (these are only examples, and would require another paper to explain all the differences) that will be either beneficial - or negatively impact your sourcing efforts. If your company's freight is not carrier friendly, work on this prior to undergoing any sourcing efforts in this market.

How does this benefit you? If you have counter-cyclical freight, or can show the carriers that you are not inclined to have the same peaks and valleys of other shippers, you will get preferential pricing and service from the carriers. This is due in large part to the carriers close attention to their operating ratios to determine which clients - and sometimes which lanes - are more profitable than others. When sourcing transportation, take time to explain how your freight is different and carrier friendly - but don't state something that is not true... remember, the carriers may know your freight better than you do.

Third, our research indicates that there is an optimal “season” to undertake transportation sourcing activities. This enables a client’s transportation sourcing activity to begin and be completed without engaging the carriers during peak season shipping. The worst noise in the industry is heard during the peak seasons - and proper scheduling of activities to bypass discussions during these times of tight capacity will allow your organization to leverage the off-season timing to increase savings.

In determining the optimal time to begin sourcing, we have leveraged our experience to forecast the effective time needed to complete a sourcing activity and not be impacted by the carriers’ peak season. The concept is to cordon off the peak season and NOT engage carriers during this period as this would have negative affects on their pricing decisions. From this understanding, you add buffers around the peak season then build backwards from implementation, contracting, through to the actual sourcing activity. Below are the key components:

Sourcing Period:	This represents the aggregate time needed to complete a transportation sourcing activity, including; Data Collection – Includes data collection, cleaning and revisions to historic shipment data needed to build sourcing basline, Sourcing – Includes RFI/RFP process, optimization and analysis, Negotiations – Includes face-to-face negotiations (up to 2 rounds),	Peak Season Period:	Pre-Season "Build" – This is a buffer created to ensure that subsequent sourcing activities do not need to be negotiated during peak season (for TL, this covers most of the spring minor peak activity as well). Peak Season – This represents the generally accepted busy period for the industry. When possible, all attempts should be made to ensure negotiations are not completed during this time. Post-Season "Hang-Over" – This is provided to allow the corporate and individual salesperson memory to fade (especially if publicly traded) allowing more aggressive pricing strategies to be employed.
Contracting Period:	This includes the legal time needed to conclude contracts with your carrier base. Where appropriate, additional time has been factored in for select modes (e.g.: Rail, small parcel, etc.)
Implementation Period:	This represents the desired time needed for implementation activities by mode. For select modes, a strategy may be employed that implements "primary" carriers before secondary carriers - when this is done, it is assumed to be a more rapid implementation.

How does this benefit you? By scheduling and properly preparing for transportation sourcing activities that do not engage carriers during critical peak seasons, you will improve your organizations to sourcing success. Use the table below to plan your appropriate sourcing strategy and begin sourcing during the proper seasonal timeframe.

Table: Transportation Sourcing Season:	Mode	Peak Season (1)	Sourcing Season (2)
	Airfreight	Q4: Sep - Mid Dec	Mid Jan - Mid Feb
	Ocean Freight	Summer: Jul -Oct	Dec - Mid Jan
	Truckload	Fall: Sep - Mid Dec (Major)	January
		Spring: May - Jun (Minor)
	LTL	Fall: Sep - Mid Dec	Mid Dec - Mid Mar
	Small Package	Q4: Nov - Dec	Mid Jan - Mid Mar
	Rail	Fall: Aug - Nov	Aug - Oct (One year before you will finish)
	Notes: (1) Peak Season shown for generally accepted industry peak periods (2) Sourcing Season indicates optimal time to BEGIN Sourcing activities by mode

***  CornerStone Select, Inc. specializes in helping clients control costs and optimize their overall transportation and supply chain operations. Our services have helped small, medium and large companies gain a strategic advantage through effective transportation management, reduced transportation procurement costs, outsourcing select operations and applying leading technologies on a regional or global basis.

***** Seasonal Transportation Sourcing - Key Assumptions ******

Mode	Peak Season (1)	Peak Season Buffers (weeks) (2)		Sourcing Time Needed (weeks) (3)			Contracting Time (weeks) (4)(7)			Implementation (5)(7)
		Pre-Peak "Build"	Post-Peak "Hang Over"	Data	Source	Negotiate	< 30	30 - 60	60 - 90
Airfreight	Q4: Sep - Mid Dec	4	4	4	6	4		45		45 - 60 Days
Ocean Freight	Summer: Jul -Oct	4	4	4	6	4		45		45 - 60 Days
Truckload (6)	Spring: May - Jun	3	4	2-4	6	4	30			15 - 45 Days
Truckload	Fall: Sep - Mid Dec	8	3	2-4	6	4	30			15 - 45 Days
LTL	Fall: Sep - Mid Dec	4	3	3	5	3	30			15 - 30 Days
Small Package	Q4: Nov - Dec	4	2	6	8	4		60		45 - 60 Days
Rail (8)	Fall: Aug - Nov	6	6	4	10	unkn			90	unkn
Notes: (1) Peak Season shown for generally accepted industry peak shipping periods for carriers (2) Peak Season Buffers described above (3) Sourcing Time estimated for average client, > $20M in spend (4) Contracting Time needed can vary according to corporate Counsel. Times shows are estimated for "realistic" clients (5) Implementation Time shown for clients with turnover of carrier base; heavy re-award of business to incumbents will expedite (6) Truckload Peak Season, and Mini Peak shown, are combined when determining TL Sourcing Season (7) Model assumes greater of Contract or Implementation time needed, plus 1/3 of other as both should be performed concurrently (8) Estimates not provided for negotiations and implementation needed for rail activities as these can vary by months in some instances