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Editor’s Choice – FMCSA HOS Final Rule: What to Know

Logistics Trends | By Logistics Viewpoints Editorial Team • 09/17/2020

Note: Today’s post is part of our “Editor’s Choice” series where we highlight recent posts published by our sponsors that provide supply chain insights and advice. This article comes from GlobalTranz and identifies what shippers and carriers need to know about the FMCSA HOS final rule.

On June 1, 2020, the Federal Motor Carrier Safety Administration (FMCSA) revised the hours of service (HOS) regulations for motor carriers. The rule will go into effect on September 29th, 2020.

The FMCSA HOS final rule is intended to provide drivers flexibility while promoting safety for drivers on the road. As shippers contend with rising freight rates and managing heightened shipment volumes, while at the same time preparing for retail peak season, understanding the potential impact of the new ruling on truckload capacity is critical to success now and through the end of 2020.

In a recent video,  U.S. Secretary of Transportation Elaine Chao said the FMCSA HOS final rule would “help drivers reach their destination safely without feeling like they’ve got to race against the clock to comply with federal mandates. They will also help truckers get the rest they need when they need it.”

The FMCSA revision to four HOS provisions was based on feedback from industry safety advocacy groups, the U.S. Congress, and the American public. The FMCSA noted that in addition to providing drivers more flexibility and promoting safe driving habits, the HOS final rule is estimated to provide nearly $274MM in annualized cost savings for the U.S. economy and consumers by reducing costs for motor carriers.

Click HERE to read the rest of the article which highlights four main revisions.

A New and Better Way to Manage Freight Trucking Risk?

Logistics Trends | By LV Staff • 02/15/2017

I was recently informed of the new start-up company named TransVix that is developing a US trucking futures exchange market. Admittedly, my logistics research is focused more on warehousing than on transportation. However, I do have a solid understanding of both logistics and financial markets, and of financial derivatives such as forward contracts and futures. So I thought I would take this opportunity to discuss the concept of trucking futures and provide my perspective, and hopefully some insights, into this interesting topic.

Trucking Rates, Volatility, and Uncertainty
Trucking rates and the costs borne by carriers are an ongoing operating concern for trucking carriers, freight brokers, and shippers due to pricing. A number of variable operating costs (fuel, labor) and market factors (supply and demand) affect shipping rates. Market participants often look to mitigate the uncertainty surrounding these costs to better manage their operations and ultimately their profit margins. Carriers can currently manage the uncertainty of fuel costs by purchasing futures contracts on fuel. Airlines are especially well-known to hedge their fuel costs, often to their own detriment. The fact that airlines often lose money on their fuel hedges begs the question, why do it then? Well, some companies choose to do it and some do not. Futures contracts on an underlying product or service like truckload rates can result in a financial gain or loss when compared to doing nothing. But their attraction is in the ability to lock in a service price ahead of time, kind of like entering into a fixed price contract for a service that would otherwise have variable pricing. And this added certainty can have secondary financial benefits to an operating firm like a truckload carrier. Namely, it can reduce the company’s operating risk and may allow it to obtain bank loans or other forms of financing at a lower interest rate due to the better predictability of the company’s cash flows, leading to decreased risk to the lender.

Trucking Futures – Form and Function
The TransVix website states that the company plans to use index-based spot trucking rates as the mechanism for settling its freight futures contracts. However, I didn’t see any mention of the specific indexes, pricing mechanisms, or lanes that will be utilized. I plan to reach out to TransVix management to obtain details about the structure these contacts will take. For now, the Baltic Exchange of maritime futures is the most well-established transportation futures market and is a likely model for the US freight futures. So it is worth looking at how the Baltic Exchange structures its offerings. Baltic Exchange forward freight agreements (FFA) are available for different sub-categories based on vessel size (Panamax, Supramax) and dry vs. wet cargo routes. TransVix will likely offer futures on major US lanes and other defining characteristics. Baltic Exchange settles its futures prices (marks to market) based on Baltic Exchange Forward Assessments submitted by participating brokers. It remains unclear what indexes or pricing sources TransVix will use to measure daily pricing for the purposes of marking its contracts to the current market price. However, there are numerous sources of lane benchmark data currently available, as my colleague Steve Banker noted in a prior post about The Science Behind the Benchmarking of Lane Rates. Baltic FFAs have predetermined settlement dates, and settlement prices are produced on the last working day of the month. Settlement dates and prices are core features of futures contracts as “price”, “value”, and “marketing to market” are often confusing to those unfamiliar with the concept.

Quick and Dirty on Futures Contracts
A futures contract, in our example, is a contract to buy/sell truckload freight capacity on a given date for a given cargo type, on a given route. The price of a futures contract is simply the agreed upon price between the two parties. For example, for $110 I will buy load size A delivered from Boston to Los Angeles on February 15, 2018. The price of a contract, generally speaking, is calculated as the current price (spot price) multiplied times 1+the interest rate, plus carrying costs (the equivalent of storage costs for a commodity like oil). For example, the price on that given shipment on that route, today February 15, 2017 is $100, and the interest rate is 10%, leading to $110 in one year as the futures price. The seller and I agree on the futures contract price today and the value of this contract is therefore $0 to both parties because we didn’t gain or lose anything. If tomorrow, the price for this shipment on this route goes down by $20, I will essentially owe the seller $20 at which time the value to the seller will be $20 and the value to me will be -$20. That $20 will be taken out of my bank account and placed in the seller’s account. Once this occurs, the value of the futures contract is back to $0 for both of us. If the spot price goes up by $10 the next day, the seller will place $10 in my account, and so on. This daily settling process removes the risk that the person of the other side of the trade will not follow through with their commitment. [This risk, known as counterparty risk is much of what was behind the 2008 global financial crisis as many of the major banks engaged in similar contracts with each other without settling (marking to market) on a regular basis.] So by entering into this contract, I have committed to spending $110 on this shipment in one year, regardless of whether the price at that time is higher or lower.

Now, the pricing of futures isn’t exactly the same as the expected spot rate at the given settlement date because of issues such as assumed risk and other adjustments. But it does allow market participants to trade away much of the price fluctuations that they face. It’s worth noting that the TransVix market will be a cash settlement market. This means that the actual purchase and sale of shipping capacity will not occur. The settlement of changes in price will simply serve as a financial mechanism to deal with price volatility and risk. Transactions for trucking freight will occur separately.

As a final note, derivatives such as futures have received a bad rap in the media in the recent past due to the role some of them (that did not mark to market or have guarantees against default) played in the financial crisis. Also, a lot of the criticism is toward speculators. In reality, most of the market is occupied by operating companies that are looking to hedge against price volatility embedded in their given industry.

New Food Safety Regulations Impact Truckers

Regulations | By Steve Banker • 09/20/2016

The U.S. Food & Drug Administration (FDA) is, step by step, implementing new rules based on the Food Safety Modernization Act (FSMA). The goal of these efforts is “to protect foods from farm to table.” The rules fall most heavily on food manufacturers, but they also impact truckers. The deadline for the section of the regulations known as the Preventive Controls for Human Food began this week.

I turned to Jon Sampson to explain these regulations to me. Mr. Sampson is the Executive Director, Agricultural and Food Transporters Conference (AFTC), of the American Trucking Associations (ATA).

The ATA has played an active role in advocating for truckers, and the final versions of these rulings are not as onerous as what was initially proposed. Frozen food transport, for example, is exempt. Carriers under $500,000 in annual revenues are exempt. And when it comes to documentation, carriers in temperature controlled supply chains were initially going to be required to provide temperature documents to the FDA. Now they are only required to keep documents that prove that they have a process in place to provide these documents when requested by the shippers.

But most importantly, the responsibility for compliance has fallen mainly on manufacturer shippers who bear greater responsibility for record keeping and training. But, that does not mean these rules only minimally impact carriers. Nothing could be further from the truth. Because these shippers are also liable for the decisions they make, they protect themselves, according to Mr. Sampson, by “asking more of their carriers. This is particularly true when transportation contracts come up for renegotiation.” So for example, even though carriers under $500,000 in revenues are exempt from these regulations, shippers concerned about liability are apt to require the same things of these small carriers that they would of larger carriers.

The premise behind putting most of the responsibility on manufacturers is that the manufacturer understands how to keep their products safe better than anyone else in that product’s value chain. It is up to the shipper to specify a checklist for carriers, and carriers to carry out those instructions. The checklist can include making sure refrigeration equipment is running properly, that the requested temperature settings are in place, that the trailer has been cleaned to their specifications, and that drivers have receive what they deem to be the appropriate training.

So for example, one shipper may require that the temperature in the trailer be checked upon loading, and again 200 miles later when it is unloaded. A different shipper may require that the temperature be monitored every 10 minutes by a telematics device connected to sensing equipment in the trailer. What a shipper is requiring of a carrier should also be based upon knowledge of how that carrier operates on that lane. So, for example, a full truckload shipment traveling a short distance might only require checking the temperature at origin and destination. But a less-than-truckload carrier that stops and opens the trailer door 15 times before the food gets to its destination would require more robust monitoring.

It is also up to the manufacturer to decide if truckers need to archive documents proving they have done what they agreed to do. The shipper might decide that those documents only need to be provided in the event of a recall. Or, the shipper might decide to require the carrier to provide documents to the manufacturer or the consignee when the goods are delivered. Or, if they are being super careful, the shipper might require the pertinent documents be electronically uploaded to the manufacturer’s traceability database at several steps along the delivery process.

The communication of shipper requirements is made more complex by the intermediaries that exist in transportation. It may be that a shipper relies a broker to find a carrier. In this instance, the shipper’s requirements must be communicated to the broker who then communicates to the carrier. The FSMA requirements treat brokers and 3PLs the same as shippers.

Even something like how a truck should be cleaned can end up having a great amount of complexity. “A trucker hauling barley out of a field may only be required to broom out the trailer,” according to Mr. Sampson. “But if the barley shipment follows a shipment of peanuts,” which cause allergies for many, “a disinfectant may be required before picking up the barley.” Based on these kinds of issues, another shipper requirement may be that the carrier be able to document the products hauled by the trailer that will carry their load over the past three or four moves.

For the transport of unprocessed meat, a number of different chemicals, or even gas treatments may be required. To eliminate all of the germs, manufacturers need to understand, and then specify, what kinds of disinfectants will kill the types of bacteria that can degrade their food products. Further, each treatment may require a different water temperature be used in the cleaning process to insure one hundred percent of the bacteria are killed. And truckers need to be alert to whether the chemicals specified by manufacturers will damage their trailers. “A chemical used on in a plant with a concrete floor may be fine for the shipper,” Mr. Sampson said, “but cause damage to a trailer.” ATA’s Technology and Maintenance Council (TMC) has formed a trailer washing group tasked with understanding what kinds of treatments could damage trailers.

Clearly, this makes life more complicated for many food carriers. Potentially a trucker with 20 different food shipper clients will be subject to 20 sets of shipper requirements. How should they respond to this? One possibility, according to Mr. Sampson, is to be a carrier with robust safety standard operating procedures and then be able to sell shippers on the robustness of your process. That way the carrier does not have to do as many distinctly different things for each shipper.

But Tom McLeod, the President of McLeod Software, pointed out that better software also becomes increasingly critical to help truckers deal with the variability of shipper requirements. McLeod Software is a provider of transportation management software solutions to the trucking and freight brokerage industry. “Some receivers,” Mr. McLeod said, “may want a report ready at the point of delivery that contains the driver’s training certification, a temperature profile, information on how the truck was precooled and how the trailer’s temperature was maintained, the trailer’s wash ticket, and all of this before they accept delivery.” What is needed are flexible software solutions, solutions with workflows that can extend to encompass multiple parties, and software that is mobility enabled.

Mr. McLeod warns that if carriers have not started getting ready for these regulations, they are already well behind where they need to be. “Carriers will need more than 6 months to get compliant.”

This Week in Logistics News (October 10 – 16)

This Week in News | By Logistics Viewpoints Editorial Team • 10/16/2015

Cubs win! Cub win! And for the first time in the 100 years the Cubs have been playing at Wrigley Field, they clinched a post-season series at home. As Jason Stark pointed out, this was the 7,907^th game played at Wrigley – and they finally clinched a series at home. This series also marked the first time since 2003 that the Cubs have won a post-season series at all. As a life-long Red Sox fan, I understand the pain of Cubs fans, and the elation they are feeling now. I remember the 2003 post-season clearly, when it looked as though the Sox and Cubs were destined to meet in the World Series, guaranteeing that one curse or the other would end. The only thing that ended was the hopes and dreams of the Sox and Cubs fans when both lost the Championship Series in devastating fashion in 7 games. The Sox got their revenge the next year with a post-season run for the ages. And even now, after 3 last place finishes in 4 years (of course that 4^th year was another World Series win), I can’t really complain too much about the Sox. But I think most of us in Boston are jumping on the Cubs bandwagon, and hoping they bring the World Series trophy to Chicago.

And now, on to the news.

Instacart and Allrecipes have partnered to allow home cooks to add a meal’s ingredients to their grocery list with a click of a button. This move pushes Instacart into unchartered waters – ingredient delivery service. Players like Blue Apron and Hello Fresh have become more popular as customers have a box of ingredients with recipes delivered to their door. While these services are a bit on the expensive side, the Instacart – Allrecipes partnership will appeal to more price-conscious shoppers. And given Allrecipe’s reach – 1.3 billion visit a year – this is a huge growth opportunity for Instacart.

Uber is expanding its UberRush service to Chicago and San Francisco. The service, which has been tested in New York for the last year, is a smartphone enabled courier service. Instead of hailing a ride around town, customers can order a pizza to be delivered. UberRush allows merchants to plug a customer’s order into an online order form. At that point, a courier (on foot, bike, or car) will pick up the order and deliver it to the customer. Uber collects a $5 to $7 delivery fee, which is either passed on to the customer or paid by the merchant. In its expansion, Uber is building what chief executive Travis Kalanick has called an “urban logistics network.” The network includes Uber, UberRush, and UberEats, which was launched last fall to lunch and dinner items from popular restaurants to Uber users in parts of New York City, Chicago, Los Angeles, Toronto, and Barcelona.

UPS announced that it is expanding its UPS Worldwide Express Service by adding 41,000 additional global postal codes. This service provides customers with guaranteed delivery on the next possible business day by 10:30 a.m., 12 noon, or 2 p.m., based on destination. The company says this will result in earlier guaranteed-delivery options for shippers that only previously had end-of-day guarantees. The service will now be available in 65 countries that make up 91 percent of global GDP, with the bulk of the new codes in the Asia Pacific region. It is the single largest one-time expansion of the service ever.

Chinese search engine giant Baidu is entering the e-commerce fresh produce sector. The company is investing $20 million (10% of the latest $200 million in funding) into Womai, a food website owned by China National Cereals, Oils and Foodstuffs Corp (COFCO), a leading supplier of agricultural products. The investment comes as a growing number of Chinese consumers are turning to the Web for fresh produce. The funds will be used to increase the cold-chain logistics infrastructure and for third-party delivery systems.

The American Trucking Associations said that the annualized turnover rate for large truckload carriers, which it defines as truckload fleets with more than $30 million in revenue, increased 3% to an annualized rate of 87% in the second quarter. However, carriers with less than $30 million in revenue saw turnover rates decrease 7%, for an annualized rate of 76%. Even so, that is still a high turnover rate for an industry that is facing a severe driver shortage. Many companies, even with claims of increasing driver training and compensation packages, are having a difficult time figuring out how to fill the empty seats. The lack of drivers has been driving up the cost of rates, and it is showing no signs of slowing.

The price of diesel, which had been trending down for the last few weeks, jumped 8.5 cents across the U.S. to an average price of $2.52 per gallon. The main cause of the price surge is refinery work in the Midwest which caused prices to jump 14.7 cents in that region. Twelve refineries in the Midwest are undergoing work which could last for several more weeks. The most expensive diesel can be found in California at $2.758 per gallon, followed by the Central Atlantic region at $2.652 per gallon. The cheapest diesel in the country can be found in the Gulf Coast region at $2.355 per gallon, followed by the Lower Atlantic region at $2.43 per gallon.

And finally, after a surge to close out September, the number of posted loads on the spot truckload market dropped 11% during the week ending Oct. 10, reports DAT Solutions, which operates the DAT network of load boards. Available capacity increased 3.7% compared to the previous week. The national average truckload van spot market rate slipped 1 cent to $1.73 per mile, with prices lower across the Los Angeles Chicago, Dallas, and Buffalo markets. Van load availability fell 15% while truck capacity jumped 5.6% compared to the previous week. Refrigerated load availability fell 13% while available capacity increased 2.1%. The national reefer load-to-truck ratio fell 15% to 3.9 loads per truck, contributing to a 5-cent drop in the national average reefer rate to $1.96 per mile. Flatbed load availability fell 8.9% and truck posts were down 1.1%, resulting in a 7.9% decline in the flatbed load-to-truck ratio to 10.6 loads per truck. The national average flatbed rate was 2 cents lower at $2.01 per mile.

That’s all for this week. Enjoy the weekend, Tom Brady’s revenge game on the Colts, and the song of the week, Eddie Vedder’s All the Way.

How to Use a TMS to Ride the Market Rollercoaster

Guest Commentary | By Glenn Koepke • 04/24/2014

In the trucking business, market volatility is part of the terrain. But in recent years, fluctuations in supply and demand seem to have become more erratic. So how can shippers use transportation management system (TMS) technology to help deal with these market swings?

A number of forces, both manmade and natural, feed the market’s ups and downs. As Jason Craig relates in his Transportfolio blog post Turning of the Screw: The Pressure Supply Chains are Under, these stresses and strains have been building up for some time.

The hours of service regulations that went into effect in July 2013 “tightened the screw” on market capacity. Driver shortage issues add to the pressure, as did the upswing in carrier bankruptcies in late 2013 due to adverse economic conditions.

Weather is surely at the top of the natural forces list. Having just endured a harsh winter, everyone has a bad weather story to tell. The fall out for the transportation industry includes tighter capacity due to equipment positioning problems, shorter lead times as schedules are disrupted, inbound delays, and higher accessorials. For more on the impact of the weather see the Logistics Viewpoints post Managing Weather’s Impact on Transportation Capacity and Costs by Mark Derks.

Jason Craig points out in his post that capacity volatility always leads to rate volatility. As the market’s unpredictability increases, shippers need to work more closely with their service providers to smooth out the peaks and valleys. They can also look to their TMS solutions – whether in-house or part of a managed services package – to help them manage changeable markets.

TMS scorecarding is one tool you can use to handle the market’s ebb and flow.

Scorecards present a clearer picture of carrier performance. For example, what are providers’ load acceptance rates and charges and how do these parameters deviate from their contractual obligations? The information is updated regularly, enabling you to identify anomalies and trends. Also, the reliability of the information is likely to be improved if the TMS provider is responsible for the data inputs rather than carriers’ self-reporting systems.

This granular picture of how service providers are performing puts you ahead of the game when facing extreme market movements. You can use the lead indicators and analyses derived from the scorecards to develop contingency plans or to help you dig out of a capacity hole when the market takes an unexpected turn. Perhaps the data shows that a core carrier is rejecting loads in favor of more profitable business in a tight market, even though it is contractually committed to moving your freight. How can you improve the carrier’s compliance rate or find alternatives?

Another option is deploying a TMS to improve the effectiveness of a spot bid strategy.

In general, shippers shy away from more costly spot capacity. However, in a difficult market where you are looking for carriers at the last minute, this alternative might be the best, or even the only, solution. Spot bids allow you to engage in competitive bidding for exception freight, rather than having to rely solely on one carrier to move the loads.

Knowing exactly how this option fits into your overall transportation strategy improves its effectiveness.

The TMS solution can shed light on why and when you are resorting to the spot market. For example, are your lead times unrealistic? Is a carrier’s network ill-suited to your business? Or are you simply expecting too much from a carrier, forcing it into high rejection rates? Another possibility is that lead times are overly variable because of communications disconnects.

Nobody knows how freight markets will track in the future. However, given factors such as climate change and the likelihood of political upheavals, it’s reasonable to assume that high levels of volatility are here to stay. Used properly, TMS technology can make it easier to ride these twists and turns and enable you to buy truck capacity more effectively in the market.

Glenn Koepke — General Manager, Americas, works closely with a team of General Managers globally responsible for customer management, supply chain excellence, employee development and continuous process improvement for customers located in North America and South America. Glenn is also responsible for TMC’s Operational Excellence and Supply Chain Consulting teams. Prior to his current role, Glenn spent four years in Amsterdam, Netherlands opening TMC’s EMEA Global Control Tower® and was responsible for extending its service portfolio to shippers in Europe, Middle East and Africa. Glenn has traveled the world implementing Managed TMS® solutions for complex global shippers. If you would like to contact or discuss this subject further with the author you are welcome to email Glenn Koepke at Glenn.Koepke@mytmc.com.

This Week in Logistics News (April 12 – 18)

EU | By Logistics Viewpoints Editorial Team • 04/18/2014

This past Tuesday, April 15, marked the one year anniversary of the Boston Marathon bombings. It was a moment that brought shock, terror, sadness, anger, strength, and pride to the city of Boston. The local and national media have done a terrific job of capturing the raw emotion of the events, and the healing process of the last year. I don’t feel it is necessary for me to recount my thoughts and opinions of the tragedy. But, I will ask that we keep all of those affected by this tragedy in our thoughts. I also want to wish all of the runners in Monday’s 118^th running of the Boston Marathon good luck and happy running.

And now, on to the news.

Gap Inc. has said that it will expand its omni-channel operations by testing a new “order in-store” capability later this year. This capability will allow online and mobile customers to reserve items in certain Gap and Banana Republic stores. This capability pushes the customer experience forward as it offers “endless aisle” shopping. This move helps to combine the digital and physical world and allows Gap to carry less inventory in stores, as long as the order can be fulfilled quickly from a warehouse or DC.

Zebra Technologies, a provider of bar code printing technology, has agreed to purchase Motorola Solutions Inc.’s business scanners. This deal combines Zebra’s bar-code labels and radio tags with the computers and scanners made by Motorola. This can simplify and streamline a company’s ability to track items through the overall distribution network. Investors were skeptical however, as Zebra’s stock fell 10% after the announcement.

Cargo theft is on the rise. Despite three years of decline in Europe, 2013 saw a rise in cargo theft. Thefts in Europe were up more than 60% last year. This is in direct relation to the rise in organized cargo theft gangs. Though rarely seen in the United States, European cargo vessels are still susceptible to violent heists and hijackings.

While a harsh winter impacted agriculture and crop production, it didn’t impact the Union Pacific Railroad. The railroad announced it delivered 14 percent higher quarterly profit as it hauled more agricultural, industrial and coal shipments. So there is good news for the freight railroad business, while at the same time, the trucking industry is struggling. A driver shortage has been plaguing the industry in recent years, and things are not looking better. The new issue: a shortage of qualified technicians. This shortage means that keeping trucks on the road will be harder than ever, which could seriously impact the future of trucking.

“The trucking industry could face a technician shortage as large as 200,000, say sources, and the Department of Labor predicts the current 1 million jobs in auto, diesel and collision repair industries to grow 17 percent by 2020. However, only about 3,500 diesel and truck techs enter the labor market through schools each year — not nearly enough to keep up with growth and demand.”

That’s the news for this week. Have a great weekend, and enjoy the song of the week: “More than a Feeling” by Boston.

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