Celadon Transport, a division of the Celadon group filed for bankruptcy protection this week just days after two former officials were charged in an accounting fraud scheme. The Chapter 11 bankruptcy filing by the Indianapolis based Celadon Group left more than 3,000 drivers jobless and, in many cases, stranded drivers across the U.S. after their company gas cards were cancelled. Another 500 administrative jobs are expected to be eliminated through the bankruptcy.
Celadon's former president and chief operating officer, William Meek, 39, and its former chief financial officer, Bobby Lee Peavler, 40, were indicted on conspiracy and other charges. They knew the value of a substantial portion of Celadon's trucks had declined and that many trucks had serious mechanical issues that made them unattractive to drivers, according to the indictment.
Earlier this year, Celadon agreed to pay $42.2 million to settle securities fraud allegations stemming from falsely reporting profits and assets. The company's stock was trading at less than 3 cents a share on Monday, down from a 52-week high of $2.83 last April 11. Celadon said it was the largest provider of international truckload services in North America, and its bankruptcy filing means 3,300 trucks and 10,000 trailers will stop rolling.
Among the big companies that failed in 2019 are New England Motor Freight, which employed more than 1,400 drivers. HVH Transportation, Falcon Transport and LME have all shuttered operations this year, too. Part of the problem, according to Donald Broughton, principal and managing partner of data firm Broughton Capital, is that spot pricing has dropped, which is hurtful to smaller companies that operate in the spot market instead of the contract market. Spot prices refer to shipping prices as they currently exist.
Trade tariffs, as well as slowdowns in a variety of markets, including housing and auto, contributed to the drop, Broughton had told FOX Business. He predicted companies would continue to fail into 2020 because of the weak pricing environment.
Additional pain for the industry could be coming next year in the form of labor laws designed to protect contracted workers from being misclassified. In California, for example, starting in January a law will go into effect that will make it harder for companies to classify workers as contractors, which the California Trucking Association has said could put 70,000 owner-operators in the state out of work. The group has sued to prevent the law from taking effect.
New Jersey is considering similar presumption-of-employment status legislation, which has caused alarm among the state’s trucking industry, as well.
What Shipper Can Do To Protect Shipments
The thousands of trucks stranded Celadon trucks likely have customers shipments onboard which will not be delivered anytime soon. Getting that freight delivered will likely cost significantly more than the original rate. The most damaging aspect of getting caught in a bankruptcy like this one is that thousands of customers supply chain has been significantly disrupted.
The best way to protect yourself against insolvent and even under achieving carriers is to vette them annually. Review financial statements, credit ratings, customer experiences on social media and verifiable on time percentages. Another option is to employ a 3rd party Logistics Firm to help with routing decisions. At Land Link Traffic Systems carrier vetting is a standard procedure. We take every precaution to route our customers freight with a financially healthy carrier with above average performance.
The boom in online stores is increasing the demand for parcel delivery services, particularly in the big cities. New York, Chicago and Los Angeles are experiencing serious traffic issues due to the amount of parcel delivery vans clogging the city streets. Add to this the number of ride share drivers in any metropolitan area daily and it is easy to see how things are getting congested.
Consumers today are spending less time in local stores and more time online, buying not only retail items but also groceries from Peapod, office supplies from Postmates and whatever they need from Amazon. According to the National Capital Region Transportation Planning Board, it’s estimated that, on average, every person in the U.S. generates demand for roughly 60 tons of freight each year. In 2010, the United States Post Service overtook both FedEx and UPS as the largest parcel-delivery service in the country and delivered 3.1 billion packages nationwide. Last year, the USPS delivered more than 5.1 billion packages. The growth in e-commerce is fueling a rise in the number of delivery vehicles box trucks, smaller vans and cars alike on city streets.
While truck traffic currently represents about 7% of urban traffic in American cities, it bears a disproportionate congestion cost of $28 billion, or about 17 percent of the total U.S. congestion costs in wasted hours and gas. Cities, struggling to keep up with the deluge of delivery drivers, are seeing their curb space and streets overtaken by delivery vehicles, to say nothing of the bonus pollution and road wear produced thanks to a deluge of Amazon Prime orders.
The problem, really, is that we now live in a world where the brick-and-mortar stores are only one part of the retail equation and, as many a “retail apocalypse” story is warning, they are a shrinking part. Demand is being driven by people in their individual homes and apartments ordering smaller amounts of goods with higher frequency: groceries one day, several items from Amazon the next. As more goods are ordered, more delivery trucks are dispatched on narrow city streets. Often, the box trucks will double-park in a two-lane street if there’s no loading zone to pull into, snarling traffic behind them.
Many American cities are also playing catch-up as they try to understand these new urban delivery challenges and systems. That’s due in part to the failures of urban planning and the nature of the trucking business. While matters of public policy like public transit, bike lanes and walkability fall within the purview of planning boards and municipal departments of transportation, freight has always been a purely private-sector enterprise. Cities don’t have reliable data on the number of delivery trucks coursing through their streets; let alone planning for them.
Looking For Solutions
Cities can’t just ticket their way out of the delivery-truck problem. For big commercial delivery companies, parking fines are just part of the cost of doing business. UPS paid New York City $18.7 million in parking fines in 2006. In 2011 in Washington, D.C., UPS alone received just shy of 32,000 tickets.
If enhanced enforcement isn’t the answer, diverting delivery traffic might be. Seattle is taking an inventory of all the remaining alley space in the city. Instead of letting developers extend housing lots into the alleys, they might be used to accommodate some of the incoming delivery traffic.
Delivery companies are also experimenting with ways to reduce their impact. Late last year, UPS introduced its first “eBike” deliveries in Portland, Oregon. The goal is twofold: Reduce carbon emissions while putting a delivery vehicle on the road small enough to take advantage of curb space. UPS is also integrating across its U.S. routes its new big-data tool, On-Road Integrated Optimization Navigation (ORION). As a UPS driver travels their route, ORION works in the background considering up to 200,000 possible routes before picking the most optimal route for a driver to take to reduce the overall time spent driving around from delivery to delivery. The next generation is going to be a real-time tool taking traffic into account.
UPS currently uses drones to help drivers in rural delivery locations. It’s unclear how practical drone delivery can be in a metropolitan area considering the risk of personal injury, theft and inaccurate consignee deliveries. The solution to the congestion problem will likely come from many angles over the coming years. We simply were not prepared for the online purchasing boom and have never caught up.
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The most recent edition of the Cass Freight Index Report issued this week by Cass Information Systems highlighted another month of freight transportation shipment and expenditure declines in September. The Cass freight index is widely considered the most accurate barometer of industry activity and trends.
September shipments, at 1.199, were up 0.8% compared to August and down 3.4% annually, marking the tenth consecutive month of annual shipment declines.
Shipments initially turned negative in December 2018 for the first time in 24 months, when it fell 0.8%. January and February were down 0.3% and 2.1%, respectively. As previously reported, the December and January shipment readings were up against respective all-time highs reached in December 2017 and January 2018, coupled with stabilizing patterns in nearly all underlying freight flows.
The culprit is generally considered to be weakness in spot market pricing for many transportation services, especially trucking, which is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens concerns about the economy and the risk of ongoing trade policy disputes. This weakness and decreases in the prime lending rate are supporting arguments for a looming recession.
The CASS report highlighted concerns regarding inflation and concerns about contract pricing and cancellation of transportation equipment orders, with four key factors playing a role, including:
1. Almost all modes of transportation used their pricing power to create capacity, which first dampened and has now killed pricing power.
2. Spot pricing (not including fuel surcharge) in all three modes of truckload freight (dry van, reefer, and flatbed) has been falling for 15 months. Spot pricing, using dry van rates as a proxy, fell dramatically from its peak in June 2018 (more than $0.50 a mile) to at one point in May falling to more than 30.0%below contract pricing (a level Cass declared unsustainable). The highly discounted pricing available in the spot market has attracted an increased amount of demand, which has deteriorated pricing in the contract market (which is down $0.20 a mile or -9.7% in the last 14 months), and has begun to close the gap between contract and spot.
3. The cost of fuel (and resulting fuel surcharge) is included in the Cass Expenditures Index. Since the cost of diesel has been negative over the last 4 months on a YoY basis (down -5.4% June, down -5.8% in July, down -6.6% in August, down -7.9% in September), it is increasing the negative amount of pricing reported.
4. Whether driven by capacity addition/creation or lower fuel surcharges (or a combination of both, which is our best guess) the Expenditures Index has continued to decline: the September 2019 Index is down -4.5% from its peak in September 2018.
What To Expect
In the first half of 2019, around 640 trucking companies went bankrupt, according to industry data from Broughton Capital LLC. That's more than triple the amount of bankruptcies from the same period last year — 175.
The slow down in trucking has especially affected small carriers, who operate largely on the spot market. Trucking loads can either be picked up on demand through the spot market, or through a pre-arranged contract. The contract market comprises the vast majority of the trucking market, according to the American Trucking Associations. Trucking has been in a recession since the first half of 2019, according to ACT Research. That fact doesn't surprise truck drivers, dozens of whom have seen their earnings slashed this year.
Spot market rates have crashed in 2019, while contract market rates haven't seen the same dip. According to the most recent Chainanalytics-Cowen Freight Indices report, dry van spot rates are down 16.1% from the same period in 2018. Contract rates in dry van are down 8.1%.
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The right pricing strategy is a critical component that companies can’t afford to overlook and is one of the most important aspects of maintaining profitability. In the manufacturer-distributor-customer value chain, one of the manufacturers most pressing challenges is being able to mark up prices in a way that helps maintain profitability while not pricing that customer out of the market. This balance is getting harder to achieve in the current B2B business environment, where the next competitor, price comparison or huge online retailer is literally one mouse click or screen tap away.
Focused on serving their customers while maintaining healthy profit margins, manufacturers have to effectively balance the cost of manufacturing with the company's profit goals. Goals that are hard to attain if the company isn’t using solid pricing strategies.
Integrating Data Your Pricing Strategy
As data continues to proliferate right along with the number of technology tools to help harness that data, companies are learning how to leverage that information across multiple departments for maximum success. Accurate data can more precisely reflect the cost of manufacturing by considering critical issues such as seasonal raw materials fluctuations, capital equipment depreciation and labor concerns. Manufacturers should be generating these cost equations on a monthly basis to forecast cost fluctuations and react in plenty of time to adjust pricing.
Gain an Edge on the Competition
Even those manufacturers that think they have the pricing game under control will surely face a new competitor, get hit with a new market trend or face another economic challenge in the near future. Look what Uber did to the taxi business. Manufacturers of the future will also understand that effectively engaging customers requires true innovation in executing the value chain. Traditional approaches to inventory, logistics, pricing and rebates will be reimagined through the application of advanced analytics and technology innovations. Given the importance of data, analytics and technology to both engaging customers and executing the value chain manufacturers will also need to leverage IT to truly energize, not just enable, their business.
Data management is central to keeping track of your costs throughout the manufacturing process. If data is properly recorded and accessible to every link in the chain, managers can touch base with their product at every stage, helping maximize efficiency, address problems quickly, and improve customer satisfaction.
Most industry practitioners believe trucking is a totally deregulated industry. It’s true that, economically, it has been deregulated in interstate commerce since the Motor Carrier Act of 1980, but safety regulations have made it one of the most tightly regulated sectors in interstate commerce. Environmental pollution, driver standards, HOS and electronic logging rules instituted by the FMCSA have been a major cost of doing business in the trucking industry. Following the pro-regulation Obama White House, Trump may be the advocate the trucking industry has been pining for. There has been no significant easing of current regulations but the good news is there is like to be no more additional legislation affecting the industry for the remainder of Trump's term. In this issue, we'll take a look at a few of the major regulations and update you on what's going on.
The three most invasive regulatory hurdles currently facing trucking are the enforcement of electronic logging devices (ELDs), the further tweaking of driver hours of service (HOS), and the move to allow a pilot program of only 200 drivers under the age of 21 into interstate commerce; an age-group that has been locked out of driving the big rigs since the Motor Carrier Act of 1935.
So far this year, the biggest issue for shippers has been the lost productivity due to the full enforcement of the ELD rule. This rule is designed to eliminate cheating on driver HOS through the elimination of paper log books in favor of electronic devices that are difficult to evade. after several delays in implementation and enforcement regulatory enforcement personnel have begun issuing stiff penalties for noncompliance. Industry analysts predict this regulation alone has caused a 3% to 8% drop in carrier productivity. Longtime advocates of ELDs say that the devices ultimately make carriers and their drivers more efficient through better planning of routes to take cost out of the system. Carriers say LEDs can help nudge shippers to work more closely with their carriers on times and locations of pickups. Even little things as reducing congestion at the loading dock can pay big dividends for both shippers and carriers in eliminating inefficiencies. The efficiency gains and improvement in public safety not withstanding, these deficits must be accounted for in the form of rate increases.
Going forward shippers should try and emulate four best practices in order to mitigate the effect ELDs are having on their valuable capacity and rates:
Make sure your business is not overly complicated from a carrier’s perspective;
Eliminate unnecessary stops as well as freight that require multiple moves;
Reduce or eliminate detention times, which ultimately reduces driver pay;
and create favorable lanes and market niches to make your relationships mutually beneficial.
Ultimately, if these goals are realized, shippers can obtain all of the capacity that they need from a variety of carriers vying for their business. Otherwise, carriers say, their choices will lessen and rates increases will skyrocket.
While compliance with the ELD rule has reached nearly 99% across the trucking industry, truckers continue to complain about HOS regulations, especially the impact they have on agriculture, seasonal deliveries, logging and other sectors of trucking.
Washington is considering revisions in four specific areas:
expanding the current 100 air-mile “short-haul” exemption from 12 hours on-duty to 14 hours on-duty in order to be consistent with the rules for long-haul truck drivers;
extending the current 14-hour, on-duty limitation by up to two hours when a truck driver encounters adverse driving conditions;
revising the current mandatory 30-minute break for truck drivers after eight hours of continuous driving; and
reinstating the option for splitting up the required 10-hour off-duty rest break for drivers operating trucks that are equipped with a sleeper-berth compartment—the so-called “split sleeper” rule.
We'll keep you informed on what revisions, if any, are implemented.
Under-21 being considered
For years trucking companies have advocated under 21 truck drivers. Insurance companies made the idea nearly impossible to implement even if Washington lightened up on this restriction. But on July 3rd this year the DOT announced a pilot program to allow a test group of 18-year-old drivers to operate 80,000-pound rigs. Based upon statistics there really isn’t any question that younger drivers are more likely to crash and be involved in serious incidents. And considering a fully loaded tractor-trailer can weigh 40 tons, carriers and safety advocates alike agree that this is no place for on-the-job training. Most carrier management and insurance companies are not proponents of the idea. These potential revisions alone will not solve the driver shortage however, carriers say it’s an example of Washington listening to the industry with an open mind, which itself is a change in the regulatory environment. To stay current on these and other industry topics subscribe to our blog www.Land-Link.com.
At its core, blockchain is attractive for global trade professionals because it can be used to create a completely secure record of every step in a given business process. Whether one speaks of applications related to finance, operations or logistics, blockchain’s ability to execute encrypted actions that include identification of the parties, authentication of a transaction and the time-stamping of blocks in a chain has a truly universal appeal. In this weeks blog we're going to explore blockchain technology in the supply chain and how this technology has changed international commerce. Blockchains have their problems, but they are rated undeniably faster, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them. Blockchain offers the greatest potential for international trade when three factors are present: a contractual agreement, clearly defined rules that govern the agreement and finally, a transaction that involves a monetary exchange. All of these are managed by smart contracts within the blockchain.
In keeping with our Supply Chain Technology series, we want to discuss in this article the applications and benefits of IoT technology in the supply chain and logistics functions. So, let's begin with a firm understanding of what the "Internet of Things" is.
Let's start with understanding a few things:
High speed, broadband internet has become the standard, the cost of connecting is decreasing, more devices are being created with Wi-Fi capabilities and sensors built into them, technology costs are going down, and smartphone penetration is sky-rocketing. All these things are creating a "perfect storm" for the IoT. Simply put, IoT is the concept of basically connecting any device to the Internet. Devices can also be interconnected to communicate with each other via the internet. This includes everything from cell phones, coffee makers, washing machines, headphones, lamps, wearable devices and almost anything else you can think of. This also applies to components of machines, for example, a jet engine of an airplane or the drill of an oil rig. If it has an on and off switch, then chances are it can be a part of the IoT. The analyst firm Gartner says that by 2020 there will be over 26 billion connected devices, some even estimate this number to be much higher, over 100 billion. The IoT is a giant network of connected "things," things in this explanation include people. The relationship will be between people-people, people-things, and things-things. In the very near future, you will have to think of little more than setting your alarm clock. After that, all your devices will know to start the coffee, preheat the oven, turn on CNN for the morning financial news...whatever we used to do manually will all be done for us through IoT. The reality is that the IoT allows for virtually endless opportunities and connections to take place, many of which we can't even think of or fully understand the impact of today.
We've been talking a lot about emerging technologies like Blockchain, IOT, (The Internet of Things) and a worldwide digital supply chain. Change is coming, and it's best we prepare. So, in a several part series, we're going to delve deeper into these technologies to explain the technology and offer some real-world applications in logistics and supply chain management. We'll start the first part of our series by taking a close look at Blockchain Technology.
What Is a Blockchain
The blockchain is a breakthrough technology that is expected to alter most industries in the coming years. Whether you work in the financial world, healthcare or any other sector, you will probably face the consequences yourself soon enough. But what is this thing you’re going to face? The technology has been the driving force behind the Bitcoin craze. It is precisely the authenticity aspect of the technology that is most valuable and provided validity and auditable confirmation to the valid value of products like Bitcoin. It gives investors a comfort level, perhaps to a degree like never.
So, in layman's terms lets look at an international shipment as an example to demonstrate the blockchain application. The blockchain is a distributed database existing on multiple computers at the same time. By "distributed" it means that all parties have access to the shipment details of our example shipment. To understand what a block is, in our example, it may be the origination documentation, customs forms, bill of lading, etc. The "Blockchain" is constantly growing as new sets of recordings, or ‘blocks,’ are added to it. So, again using our example, the next block might contain details on the sailing date, cargo vessel, and container ID. Each block includes specific information, a timestamp and a link to the previous block, so they form a chain. So, you might imagine the next "block" would contain details of the destination port, offloading time and warehouse location. The next block would likely include information on the cartage agent, truck number, driver ID, etc. And finally, the last block would contain details on the final delivery including proof of delivery signatures and time stamps. The heightened level of security and impervious nature of the technology to fraud is what blockchain offers to transactional business like ours and just about every other industry. The database is not managed by anybody; instead, everyone in the network gets a copy of the whole database. Old blocks are preserved forever, and new blocks are added to the ledger irreversibly, making it impossible to manipulate by faking documents, transactions, and other information. So, blockchain is independent, transparent, and secure. The advantages of such a distributed ledger are apparent: being it cost and risk reduction, data security, or transactions transparency, companies from most industries can surely benefit from this new technology.
So now that we have a clear understanding of blockchain technology let's examine some Logistics and Supply Chain applications that are emerging today.
Shipping and Receiving Functions
Cargo companies across the world, especially those that support international delivery, recognize the benefits of the blockchain technology. The technology can allow the company to track each item while simplifying the existing logistics process. Maersk, the world’s biggest operator of shipping containers, has already experimented with blockchain. They along with Dutch Customs and US Department of Homeland Security used the technology to keep tabs on the movement of their cargo across international borders. Maersk has now teamed up with IBM to develop highly secure logistic systems that will alter the global trade landscape for good.
The system is expected to save billions of dollars for companies engaged in freight transportation by replacing existing logistic processes. It will help to reduce errors, improve delivery times and enable detection of fraud while lowering costs incurred.
Invoice Paperwork and Payments
A significant challenge in logistics is developing efficient and secure systems for invoicing and payments. For decades shippers have extended payment terms by insisting on receiving original proof of delivery receipts for example. Blockchain will eliminate the need for such documentation. Tallysticks has developed a platform, launching in September, based on blockchain that can handle invoicing and payments for logistic and other businesses. Based on smart contracts, it automatically sanctions a payment corresponding to an invoice. Visa has also jumped on the blockchain bandwagon and has launched its B2B Connect payment service. It aims to simplify payments across international borders while ensuring security and transparency. It also provides that a system that prevents frauds and minimizes errors is in place without involving a middleman.
Blockchain technology can be used to build an efficient system that allows different companies to keep track of their products even at micro levels. Multiple food retailing companies have partnered with IBM to develop a system based on blockchain that allows tracking of food items. The alliance includes Walmart, Nestle, and Unilever to name a few. The technology will enable the company to backtrack individual food items back to the farm. Walmart has successfully experimented twice with the blockchain. It tracked pork in China and mangoes in Mexico to their origins. This accurate tracking ability is of importance in recall situations threatening public health.
How will tracking a fruit or meat product be useful? Roll back to the E. coli outbreak in the U.S. ten years ago wherein spinach infected with the microorganism spread the disease. If a similar incident occurs in the future, it will be easy to identify the infected batches of the commodity. There will be no need to destroy the whole stock, only the infected ones. Time is of the essence for managing such incidents and limiting the damage to both the public health and the corporations brand value.
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According to industry experts the biggest weapon a company must have to outperform its competitors over the next 3 years is the Digital Supply Chain. The DSC will dramatically improve revenue and reduce costs while delighting customers. There is little disagreement among logistics professionals that this is the direction supply chain technology is moving. The sheer magnitude of data involved in logistics transactions simply requires digitization for the effective management of the information and efficient operations. So, if we're all in agreement regarding the direction of our industry now is the time for shippers and transportation providers to implement the necessary protocols and personnel to be adequately prepared for the transition to digital based logistics technology. Let's examine the theory behind the DSC and what needs to be done to make the transition.Read More