[ALI] [Article] High-Wire Act
By James A. Cooke, Executive Editor -- 9/1/2005
Logistics has become a sort of high-wire act. Logistics managers today are
walking a tightrope, juggling competing demands for outstanding customer
service and cost control while trying to avoid being knocked off their
precarious perch by rising freight rates. That's the picture that has
emerged from the results of our 14th annual Masters of Logistics survey.
"There are a lot of changes occurring that logistics managers have no
control over," says Karl Manrodt, an associate professor at Georgia Southern
University and one of the study's authors. "It's a little overwhelming."
For the past 14 years, the study has identified emerging trends in logistics
and provided beneficial benchmarking data on transportation and distribution
practices across a number of industries. As in past years, Logistics
Management conducted the study in conjunction with researchers at Georgia
Southern University, the University of Tennessee, and the consulting firm
Capgemini. This year, more than 2,300 readers took part in our online
Costs On the Rise
The 2,311 shippers who participated in the survey this year accounted for an
estimated $80.4 billion of transportation spending. Respondents hailed from
a cross-section of industries, with manufacturing representing just over 48
percent of the participants.
Forty-nine percent of those surveyed described themselves as logistics
managers; another 18.8 percent said that they were directors.
Analysts/coordinators weighed in at 9.4 percent, and 7.9 percent said they
held the title of supervisor. Nearly half of the respondents-45
percent-worked for companies with less than $250 million in annual sales. At
the high end of the scale were the 9.5 percent reporting annual corporate
revenues exceeding $9 billion.
When it comes to domestic transportation expenditures, 67.8 percent of
survey respondents reported that their companies currently spend $49 million
or less on such services each year. Another 11.5 percent indicated that
their employers spend $50 million to $99 million on domestic shipments. A
mere 1.6 percent of survey takers spend between $500 million and $750
million, while the biggest spenders were the 4.4 percent who purchase more
than $750 million in domestic transportation services annually.
Our study found that transportation expenses as a percentage of company
costs are on the rise. Last year, transportation expenses on average
accounted for approximately 2.6 percent of the cost of goods sold. This
year, that percentage climbed to nearly 3 percent.
The same goes for the cost of transportation as a percentage of company
sales. Last year the average was 2.6 percent, while this year it rose
slightly to 2.8 percent.
Expecting Higher Rates
With rates and fuel prices rising steadily, it's no surprise that many
respondents said they were expecting to pay more for transportation services
in 2005. At 44.8 percent, truckload shippers were most pessimistic, while
36.1 percent of buyers of regional less-than-truckload (LTL) services said
they were anticipating higher transportation costs. As for national LTL
shippers, 28.2 percent were planning on spending more in 2005. That was a
huge jump over last year, when only 4 percent of those buying national LTL
service said they were spending more than they did the previous year.
More than a quarter of ocean shippers-28.7 percent-said they were bracing
for higher freight bills. Likewise, 28.1 percent of intermodal shippers were
anticipating higher freight charges. (For complete details, see Figure 1, at
When survey participants were asked to identify which factors were driving
up transportation rates, they laid much of the blame on fuel surcharges. On
a 5-point scale, with 5 representing a very negative factor that would help
increase rates and 1 representing a very positive factor that would lower
rates, respondents rated fuel surcharges at 4.26. Port congestion was ranked
second, with a rating of 4.0. Next came driver turnover and hours-of-service
regulations, which tied at 3.7. (See Figure 2.)
Clearly shippers are struggling to gain control over many factors that are
raising freight costs. Whether they're fighting a losing battle is still
unclear. "Shippers are still in a reactive mode," says Mary Holcomb,
associate professor at the University of Tennessee and a study co-author.
"Many of the factors that are contributing to high transportation costs
can't be changed at the company level alone."
More Intermodal, Less Truck
Researchers asked survey takers to break down their transportation spending
by category, and their responses indicated that they're cutting back
somewhat on their use of for-hire trucking services. For instance,
respondents said that they are spending on average 10.6 percent of their
transportation dollars on national LTL this year, compared to 12.7 percent
last year. And they're expecting to spend 9.9 percent of their freight
dollars on regional less-than-truckload carriers, as opposed to 10.2 percent
in 2004. Even truckload spending is being scaled back, to 28.9 percent
versus 29.8 percent last year. This decline in spending on trucking services
may indicate that soaring fuel surcharges are encouraging shippers to revamp
their modal lineup.
Further evidence of that shift can be found in the upswing in spending on
intermodal transportation. Respondents spent only 1.8 percent of their
transportation budgets on intermodal shipments last year. This year, they're
devoting 5.6 percent to intermodal. Rail usage also increased, rising from
5.2 percent in 2004 to 5.9 percent in 2005. Private fleets showed small
gains, with spending increasing from 13.1 percent of transportation budgets
last year to 13.7 percent in 2005.
Reflecting the continuing surge of imports into this country, shippers
increased their spending on ocean services from 4.8 percent in 2004 to 6.6
percent today. (See Figure 3.)
Last year, the Masters of Logistics study detected an erosion in the
core-carrier concept, under which shippers tender the bulk of their freight
to a selected group of preferred transportation providers. This year's
results were mixed. But the percentage of truckload shippers who said they
were expecting to use more carriers held more or less steady, with 33.2
percent in that group in 2005 compared to 34.4 percent last year. The
percentage of shippers who were expecting to use more ocean carriers,
moreover, dropped from 28.1 percent to 16.4 percent.
Yet researchers saw big jumps in the percentages of shippers who were
planning to expand the ranks of their airfreight and intermodal providers.
Last year, 1.2 percent of respondents said they would increase the number of
airfreight carriers they used. This year, by contrast, 16.9 percent planned
to do so. Similarly, if not quite as dramatically, 8.6 percent of last
year's respondents expected to use more intermodal service providers, and
13.9 percent were expecting to do the same in 2005.
Shippers showed little interest in using more national LTL, rail, barge, and
parcel carriers, most likely because there is limited market competition in
those industry segments.
The Past Looks Brighter
Last year, it appeared that carrier performance had stumbled after steadily
improving for the past decade. This time around, performance stabilized with
no significant gains or losses in most categories. One likely reason: After
widespread declines in service in 2003 and 2004, many shippers tied their
rates to service requirements. As Capgemini's Peter Moore notes, "Without
this added 'incentive,' a decline in service from 2004 would have continued
as carriers juggled a multitude of issues, from driver shortages to
The news wasn't entirely upbeat when it came to equipment availability. When
asked what percentage of their requests carriers were able to fill with
available equipment, truckload shippers said availability had improved from
90.8 percent in 2004 to 93.5 percent this year. Shippers using national LTL
and express package services, however, indicated that it was markedly harder
to get the capacity they needed. (See Figure 4.)
The percentage of on-time deliveries for regional LTL carriers slipped very
slightly, from 95.5 percent in 2004 to 95.1 percent in 2005. Survey
respondents reported only slight improvement for truckload carriers, from 95
percent on time in 2004 to 95.2 percent in 2005. National LTL carriers are
meeting their delivery commitments 93.8 percent of the time compared to 92.4
percent last year, according to survey respondents. (See Figure 4 for a
Those variations, however, are so slight that they may not be truly
significant. "These small changes are most likely 'noise' in the data rather
than real improvements by the carrier base," Karl Manrodt observes.
Some other modes, though, have showed steady improvement. Railroads raised
their on-time percentage from 84.1 in 2003, to 85.4 in 2004, and to 88.4 in
2005. Similarly, shippers reported that in 2003 express package carriers
delivered 92.3 percent of their goods on time. In 2004 that percentage
climbed to 96.3 percent, and this year it reached 97.7 percent.
The picture for freight loss and damage was inconsistent. The average
percentage of rail shipments experiencing loss and damage jumped from 2.3
percent in 2004 to 5.6 percent in 2005, while the figures for national LTL
increased from 2.6 percent to 3.1 percent. Truckload shippers, however,
witnessed a welcome improvement from 3.9 percent last year to 2.2 percent
this year. (See Figure 5.)
Meanwhile, invoice accuracy improved in all modes except for railroads and
national LTL. The drop in the billing error rate was most significant among
truckload carriers, which cut error rates by nearly half.
One of the study's most troubling findings was that the percentage of
shipments being turned down by carriers has more than doubled in some modes
since last year. In 2004, national LTL shippers said that carriers refused
less than one percent of their shipments. This year, it was a different
story as those shippers reported a 1.8-percent turn-down rate. According to
respondents, express package carriers, railroads, and regional LTL carriers
have increased the percentage of shipment refusals. Only truckload shippers
reported any improvement, from 5 percent in 2004 to 4.3 percent this year.
These findings appear to indicate that carriers are becoming more selective
about which freight they haul in a market where capacity is limited, costs
are high, and demand for transportation services is rising.
Focus On Customer Service
In addition to collecting benchmarking data, the Masters of Logistics study
tries to get a sense of the operational and strategic issues shippers are
Because transportation costs are rising in all modes, survey takers were
asked which actions they've taken to resolve various transportation issues.
Greater communication with carriers emerged as the leading response, with
10.3 percent of participants saying that they had increased communication
with their transportation providers. Another 9.6 percent said they had
improved shipment consolidation, while 7.3 percent were using more dedicated
On the opposite end of the scale, only 1.5 percent had implemented a reverse
auction for carrier bidding. (See Figure 6.)
As noted last year, there's a small but steady shift away from cost
reduction and toward customer service as the main focus for logistics
managers. This year, nearly 40 percent of survey takers told us that
customer service was the most important strategic focus for their division
or business unit, up from 36 percent last year. At the same time, the
percentage who said that their strategy was to be "all things to all people"
increased from 30 percent to 34 percent. The primary focus on product and
market innovation declined from 17 to 13 percent, and cost leadership
dropped from 16 percent to 13 percent over the past year.
Increasing customer satisfaction, with 32.5 percent, beat out cost reduction
(31.9 percent) as the primary objective for respondents this year. Another
24.1 percent named maximizing profitability as their overall goal.
As the survey results make clear, logistics managers will continue to face
demands that they balance control of fast-rising costs and delivery of
higher levels of customer satisfaction. To be successful, they'll have to
muster every resource and bit of knowledge they have. In today's business
environment, says Holcomb, "Transportation skills and expertise are needed
now more than ever."
You can verify the authenticity of this message within 7 days since delivery date at
[Non-text portions of this message have been removed]
Asosiasi Logistik Indonesia [ALI]: "turut meningkatkan kualitas SDM Indonesia di bidang profesi logistik dan sebagai wadah komunikasi industri logistik di Indonesia" www.ali.web.id
"Friends of ALI are: Cipta Mapan Logistics"
YAHOO! GROUPS LINKS
- Visit your group "indo_logistician" on the web.
- To unsubscribe from this group, send an email to:
- Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.