Browse Tag

ELD MANDATE

Rising Costs and Lower Capacity in the Domestic Truckload Market

2018 is off to a strong start for the economy and manufacturing, but there is a shortage of available truckload capacity on the spot market. The Purchasing Managers Index has not dropped below 50 since August of 2016. This time frame almost exactly correlates with the last low point in the Dow Jones Industrial index. (October 2016, 18142.42) In August of 2016, the dry van spot market rate was roughly $1.65 per mile, today that number is $2.30 per mile. As already discussed, that number is coming along with a driver shortage and carriers not wanting to adhere to the ELD mandate.

More Freight, Less Capacity

Currently there are 5.5 available loads for every available truck in the United States. Carriers can pick and choose the freight they want, at the rate they want, going where they want.

On the heels of the new Tax Plan, businesses like Boeing, AT&T, AAON, AccuWeather, Southwest Airlines, American Airlines and many others have given out employee bonuses and increased charitable donations to show good faith in the plan. This leads many to believe economic growth is not slowing down in 2018 which then leads to more manufacturing and more freight shipments.

How Can BlueGrace Help?

Transportation Management providers like BlueGrace Logistics will consult with your business and provide a solution that can help insulate your company from the chaos in the spot market. Here’s how:

  • Current State Analysis, inefficacy identification
  • Future State Vision and growth plan
  • Benchmark Current Rates, identify lanes and current carrier mix
  • Load Planning and Consolidation Scope and Strategy
  • Network Optimization
  • Dedicated resources

BlueGrace can start this process with an initial consultation and discovery call. Do not let the constraint and capacity of 2018 ruin your budget before it even gets started. Fill out the form below to schedule your free assessment today!

Retailers Say Don’t Let Your Freight Be Early Or Late

The transportation industry is perhaps one of the most daunting when it comes to rules and regulations. Hours of Service and Electronic Logging Devices are just a few of the most recent roadblocks to come up recently. Merely staying in compliance with these new regulations can be a costly endeavor. What’s worse is that being caught out of compliance could mean penalties, fines, or even a trucker losing their job.

As if all that wasn’t bad enough, truckers and freight forwarders have to balance all of that on top of growing customer expectations. WalMart, in particular, is starting to crack down on deliveries with their OTIF program. Kroger, another heavy-hitting retailer, is also beginning to levy penalties on tardy shipments. Missing the delivery window could mean hefty fines for carriers. However in this case, missing the delivery window doesn’t just mean being late, but even arriving early could prove costly for carriers.

Tardy Carriers Will Pay the Price

Retailers are warning retailers that disputes simply won’t be tolerated. On Time. In Full. Or Else.

WalMart can be rather ruthless when it comes to their profit margins, but other retailers are starting to rally to the call, creating an unforgiving environment for errant carriers. Retailers expect their loads to be packaged properly, delivered in full, at the designated time. To that end, retailers are taking a very defensive stance over their new initiative, warning retailers that disputes simply won’t be tolerated. On Time. In Full. Or Else.

Wal-Mart has signaled it could do more than levy fines if problems persist. Charles Redfield, executive vice president of food for Wal-Mart U.S., told suppliers they could also lose shelf space if they don’t solve their delivery issues, according to people in attendance at a supplier meeting earlier this year. “Retailers can threaten suppliers with loss of promotional space in stores”, analysts said, according to the Wall Street Journal.

In the few short months that the program was unleashed upon carriers, WalMart has already been dishing out the penalties. For example, late or missing freight could cost a carrier up to 3 percent of its value. Early arrivals are no less forgiving due to the fact that they create an overstock. This overstated Just In Time philosophy keeps the shelves full and the WalMart customers spending, which is all well and good for WalMart as it means they can run with the big dogs like Amazon.

it’s likely only a matter of time before more retailers jump on the no-nonsense bandwagon.

“Wal-Mart executives say a more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to the retailer as it invests heavily to compete online. The change could create $1 billion in additional sales over time, they said. “We hope we don’t have to collect any fees from suppliers. We would much rather have all the product we ordered on time,” said Wal-Mart spokesman Kory Lundberg,” the WSJ adds. While Kroger is seemingly more lenient, simply charging a flat $500 for late shipments, it’s likely only a matter of time before more retailers jump on the no-nonsense bandwagon.

Carriers Feeling the Pressure

These new policies will be costly for carriers for more reasons than just the fines.

These new policies will be costly for carriers for more reasons than just the fines. Simply implementing the procedures and equipment necessary to hit that 95 percent compliance mark could prove to be too much for smaller carriers. While bigger carriers can just add some new factory processes to help with packing and loading, smaller carriers don’t always have that luxury. Many new carriers are just hoping to break even for their first few years of operation until they can build both a steady reputation as well as a customer base.

Furthermore, WalMart and Kroger’s steadfast approach to “no excuses” will mean that carriers can be slapped with a fine for circumstances that are beyond their control. Anything from heavy traffic and construction work that causes serious delays to severe weather events that makes travel all but impossible will all have a negative impact on carriers. Conversely, what happens if a carrier does happen to show up early? Is it better to take the financial hit for the early delivery or shell out for extra meals and more time on the road for the driver?

There’s also the concern that drivers might take it upon themselves to exceed the daily drive limit to ensure their delivery is on time. Not only is this dangerous, not to mention illegal, but soon driver’s won’t even have that as an option when the ELD mandate goes into effect this December.

The Bitter Citrus Industry

A growing concern over these new on-time delivery policies is what it will mean for Florida’s citrus growers. As both Walmart and Kroger are considerable retailers of foodstuffs and produce, that makes them some of the biggest customers for such items. As Florida citrus groves have not only been ravaged by HLB for several years, but hurricane Irma caused some considerable damage.

“Andrew Meadows, a spokesman for Florida Citrus Mutual, a trade organization for growers, predicts growers statewide will end up losing more than half of this year’s crop to Hurricane Irma. The Florida Commissioner of Agriculture has estimated the cost of Irma to Florida’s farm sector at $2.5 billion, with projected losses to citrus producers the worst of any sector, at $760 million,”according to an article from Marketplace.

Suffice it to say, this policy might create better profit margins for retailers, but it’s not going to make them any friends among the carrier community.

This puts both the growers and their carriers in a serious predicament. As much of the damage won’t be fully realized for another two years at least, making guesses on shipments is a dangerous gamble. Guessing too low means crops left unsold which is money wasted. Guessing too high, however, means that carriers won’t be able to make full deliveries which means the fines will get passed down the line back to growers. In either case, it’s a lose lose for an industry that’s already in danger. Suffice it to say, this policy might create better profit margins for retailers, but it’s not going to make them any friends among the carrier community. As the regulations begin to tighten from both retailers (who will undoubtedly add more to the list) as well as the ELD mandate, we’ll have to wait and see how carriers respond to the growing pressure.

Do You Need Help With OTIF Issues?

A 3PL, such as BlueGrace, can help your business overcome the challenges of OTIF and other supply chain issues. If you have questions about OTIF or just how to simplify your current transportation program, contact us via phone at 800.MY.SHIPPING or using the form below, we are here to help!

How does Freight and Transportation Fit into your Budget?

The 2018 budget season is heating up!

We all know how it goes. The heads of each department work on their annual budgets and turn them in to finance. Finance then returns with remarks like “the budget is too high, make it leaner.” How do you go about “trimming the fat” off of the transportation budget? Transportation is typically a 10-12% cost band on the general ledger for most manufacturers and distributors and once the 2018 budget is locked in, it doesn’t change.

MABD and OTIF Affecting 2018

There will be challenges rolling into 2018 with freight carriers and big box retailers making their Must Arrive by Date (MABD) programs or On Time In Full standards (OTIF) rules more strict.

Huge retailers have very strict rules when it comes to receiving products by a certain date to restock their shelves. If a manufacturer or distributor is not getting their product to the retailer by the (MABD) or Must Arrive By Date, the retailer can hit the business with a ‘charge-back’ for a certain percentage of the invoice value. Not only will the business have to pay a fee, but it will reflect poorly on their business scorecard as well. Now, Walmart is taking it one step further with OTIF, On Time In Full standards that can penalize businesses for being too early or not having matching amounts of product.

General Rate Increase with Less-Than-Truckload

At the beginning of every year the LTL carriers will begin to roll out general rate increases also known as GRIs.

Something to remember about LTL carrier GRI’s, is that the announced GRI isn’t necessarily indicative of the true impact to a shipper’s bottom line freight cost because the GRI is not a flat percentage rate increase across the board.

It is merely an aggregate combined average percentage increase across all lanes serviced by a carrier. Rates in some lanes may remain unchanged but some may increase by more than 4.9%.

A shipper could be seriously impacted by a general rate increase much higher than what’s announced by the carrier, so it’s imperative for shippers to check each lane for actual impact on costs.

Has your transportation and supply chain departments brought these items into consideration when rolling out transportation budgets?

Freight Cost Allocation

There is also the issue of past freight cost allocation. True freight cost allocation should show your most profitable ship to locations, customers and products. Were you able to deploy sales people, advertising and marketing budgets to the correct locations? Were customers and product lines also accurate in relation to your budgeting for 2018 as well?

Transportation cost is much more than beating up LTL Carriers on price, sending out an annual RFP and picking carriers based on cost alone.

Don’t just remove a carrier and bring in a new one if you have a spat with the driver or if a shipment gets damaged. Make the decision based on the total of the carriers activity.

Consider a 3PL When Budgeting

Transportation costs affect all aspects of your organization and should be taken very seriously. When working on the 2018 budget, consider working with a third party logistics provider (3PL), as they will take the time to learn your business and see how these costs can affect everyone in your organization.

 

 

 

OTIF – The New MABD for Walmart Suppliers

Walmart and other big box retailers introduced us to the “Must Arrive By Date” or MABD several years ago, which held suppliers to tighter compliance regulations. These regulations raised quite the concern over suppliers getting the right products to the right stores or distribution centers by a certain time or they would pay a fee.

Fast forward to now and we are having a similar discussion with suppliers and shipping companies about the new “On-Time In-Full” OTIF, policy. Although this mandate has been in the introductory phase since January of this year, the short pays will begin now and suppliers will most likely see their first chargebacks from Walmart in September! This program mandates that if any shipment arrives early, late, or on-time but is not packaged properly, the shipper will be charged 3 percent of the total items’ value. (i.e. a supplier has a purchase order of $10,000 but their product didn’t meet the OTIF guidelines so Walmart will only pay $9700 for the merchandise.)

The short pays will begin now and suppliers will most likely see their first chargebacks in September!

OTIF > MABD

The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”. In the past, if less than 90% of merchandise cases were received within the MABD delivery window, the supplier would pay 3% of the cost of goods. Now, full-truckload suppliers of fast-turning items must arrive by the specified date 75% of the time, 100 in-full.

The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”

Any items claimed late or missing during a one-month period will be fined 3 percent of their value. Starting in February 2018, OTIF will go into full effect, requiring deliveries to be on-time and in-full 95 percent of the time.

The MABD Window vs. OTIF Window

The MABD Window was a three-day grace period for perishables and a four-day grace period for food, consumables and general merchandise. The OTIF window is much tighter with a one-day for perishables and a two-day for general merchandise.

“Variability is the No. 1 killer of the supply chain,’’ Kendall Trainor, a Wal-Mart senior director of operations support and supplier collaboration.

Variability is the No. 1 killer of the supply chain

In some cases, a problem will be Wal-Mart’s fault, so the retailer has developed a scoring system that breaks down reasons for non-compliant deliveries and will fine suppliers only if they’re responsible. If suppliers don’t agree with the fine, too bad: Disputes “will not be tolerated,’’ Wal-Mart says.

This change is expected to add $1 billion in revenue.

Arriving early, arriving late, not arriving in full will be the issue in a shipper’s supply chain. This change is expected to add $1 billion in revenue. Walmart had to find efficiencies wherever it could and they feel a sense of urgency as the rival between them and Amazon amplifies.

FTL and LTL Guideline Breakdown

Here are the latest OTIF guidelines for full truckload (FTL):

  • Starting August 2017, FTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 75% of the time.
  • By February 2018, FTL suppliers must deliver orders 100% in full, on the must arrive by date, 95% of the time.
  • Non-compliance will result in a fine of 3% of the “missing case” value; early deliveries will also be penalized, to eliminate overstock situations. (Penalties will be short paid monthly.)

For less-than-full truckload (LTL):

  • Starting August 2017, LTL suppliers must deliver orders 100% in full, on the must arrive by date 33% of the time.
  • By February 2018, LTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 36% of the time.
  • If OTIF was 36% or better in August 2017, then the supplier must demonstrate a 20% improvement.
  • Non-compliance penalties (3% of non-compliance COGS) will be short paid monthly.

What does this mean for YOU?

Manufacturers and suppliers that work with large retailers like Walmart are more successful in getting their merchandise on the shelves with the proper lead time due to partnering with a third party logistics provider (3PL).

Suppliers scorecards will inevitably be affected

Suppliers scorecards will inevitably be affected, so it is imperative for a supplier to find a 3PL they can count on for navigating these changes. A 3PL, is an expert in transportation management and supply chain optimization and has the ability to help estimate from start to finish where the OTIF will impact the suppliers products.

We look at every aspect of your shipment and find the appropriate fix

BlueGrace has the ability to work with suppliers on freight consolidation, chargeback auditing and management as well as load planning and optimization. We look at every aspect of the shipment and find the appropriate fix for the shipments to reach the shelves on-time and in-full. Combine this with our proprietary technology BlueShip™ and your chances for success during these mandates/compliance regulation changes will undoubtedly increase!

 

 

 

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