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Sharing the Load
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Collaborative Transportation
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With today's focus on reducing costs and protecting the
environment, the time for collaborative transportation
management may be here.
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Canada, the second largest country in the world - about
5,000 km from Vancouver to Conception Bay - is one of
the most challenging, high-cost countries in which to
distribute goods.
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Forty-two percent of the population inhabit five urban
areas where manufacturing and distribution facilities
face common transportation challenges. Meanwhile,
disproportionate shares of transportation resources
are required to service the balance of the population,
scattered over 10 million square kilometers. The
situation dictates a high use of less-than-truckload
delivery, and all-too-frequently, pick-up and delivery
trucks simply aren't full.
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Rate and Wrong
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Consumption Based Fuel Surcharge
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Fuel needs to be a flow-through consumption-based charge
- a system that would fair for everyone.
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Fuel costs are the largest ongoing financial concern
for both carriers and shippers. Fluctuating fuel costs
create challenges for companies to remain on budget,
which ultimately impacts bottom lines.
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The current recession has tempered the volatility we've
seen creating chaos in previous years. Rack fuel prices
this year have been trending between $0.692/litre and
$0.792/litre, according to Freight Carriers Association
(FCA) data. The truckload rate for fuel surcharges ranges
from 16% to a recent high of 21.4%. Compare this to July
2008 when fuel peaked at a rack price of $1.33/litre with
the truckloads surcharged at 49.9%.
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The recession has reduced the demand for fuel, and
that has provided relatively stable pricing. Fuel
consumption will inevitably pick up again, once the
economy begins to recover, and many of the issues
that existed prior to the recession to create fuel
shortages (and drive prices up) are still in force.
This will leave Canadian consumers paying considerably
more for fuel. Carriers will be forced to increase the
fuel surcharge. and transportation service purchasers
will have to pay.
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The logistics community needs to start reviewing
how it deals with the cost of fuel. The current
method of surcharge using a percentage doesn't
account for how fuel is consumed. Percentage based
fuel surcharges have no real bearing on how much
fuel is required to haul a particular load. It
creates an unequal cost for fuel for the shipper
paying a higher freight rate than a shipper with
a lower rate for a move for a similar lane.
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Take, for example, "Shipper A," rated at $1,200,
and "Shipper B," rated at $1,000. The extra cost
of the fuel surcharge at 21.4%, once the rate
differential is removed, is $42.80 more for
"Shipper A," who has not consumed any more fuel
to move his load.
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The original concept for fuel surcharges was cost
recovery, according to the FCA's fuel bulletin of
August 13, 1999. The idea was to compensate carriers
for incremental fuel costs that were occurring at
any given time. But when fuel is charged on a
percentage basis, a portion of the rates is compounded
into the total freight costs, causing a hidden increase.
How many rate increases have carriers submitted over
the past 10 years since the original percentage based
fuel surcharge of 1999?
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The best way to change this is to use a distance
formula based on average vehicle consumption of fuel.
Therefore the formula would be the rack price per
litre use the current $0.792, less the $0.39 litre
cost that was embedded in the original freight rate
when fuel surcharges were implemented, equals $0.402.
Divide this by the average kilometres per litres
providing a cost kilometre travelled. A good conservative
benchmark for a tandem tractor is 2.3 kilometres/litre.
This provides a fuel surcharge of $0.175/km. On the
$1000 rate for a recent trip of 842 kilometres, the
percentage fuel based on 21.4% was $214 but as cost
per kilometre it is $147, a difference of $67. For the
low volume shipper the fuel reduction difference was $110.
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Opponents of this method will indicate trucks pulling
heavier loads use more fuel versus lighter loads. Then
there's the question of what to do with LTL. When I
look at the Freight Carrier Association fuel charges
there are three classifications LTL, TL, and Heavy TL.
This could be easily adapted into a distance based
formula. With the LTL being the most complicated to
develop. However nothing is insurmountable, a cost per
cube kilometre could be developed similar to how the
FCA developed the LTL percentage surcharge.
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The other issue opponents have against using a per-
mile fuel formula is empty miles, summer versus winter
utilization. Trucking companies benchmark fuel
consumption on an ongoing basis. The number of 2.3
kilometres/litre was for a tandem fleet of 150 tractors
that operated over a number years. It has everything
embedded in it: summer, winter, empty, full, city and
highway travel.
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Fuel needs to be a flow-through consumption-based charge
- fair for everyone, based on the original intention.
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Finding The Win Win Deal
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Freight Negotiations
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Freight negotiations don't need to be like poker games,
where only one side can win the pot.
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Negotiation is something logistics professionals will
be called upon to conduct many times throughout their
careers. It comes with the territory. Successful
negotiation is essential in business - especially when
the economy is struggling. Everyone strives for the
best value and the lowest costs when obtaining the best
service possible.
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Unfortunately, however, when it comes to freight
negotiations, many companies specialize in the
"win-lose" approach - a positional or distributive
negotiation whereby one party's gain is another
party's loss.
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Fuelling Your Supply Chain
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Inbound Freight Programs
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When purchasing and transportation come together
they are not only helping to improve operations, they
are also contributing to the bottom line.
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One of the hottest trends in business by large
corporations is Inbound Freight Programs. Most
perceive this program as a means to reduce costs
by capturing the transportation component included
in the line item price by receiving a discount or
refund from the vendor which creates a revenue stream.
The revenue stream is then applied to the costs of
transportation for the goods which returns a margin
due to their buying power with their carrier(s) of
choice. At Aptitude4 our perception of an "Inbound
Freight Program" has more opportunities then the
transportation savings.
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Green Your Logistics
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Reducing Emissions
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GHG emission reductions must be tackled the same
way you achieve safety in the workplace. You need
to implement a strategic plan and stick to it.
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10 ways to reduce your environmental footprint and
improve profitability.
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Many companies talk about reducing greenhouse gas (GHG)
emissions, but too often there's a large gap between
words and action. Most companies seem to be holding off
on taking any real steps to reduce their environmental
footprint because they believe the investment cost is
too high.
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Out Of The Woods
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Lean Logistics
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Lean logistics will help any company - during hard
times and hay-days alike.
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Recent business reports indicate that the recession is
over. This may be the case for some leading companies,
but not all. Many businesses are still just barely
holding their own. Others are in obvious distress.
They'd take great exception to overstated optimism.
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The true sign that we've come out of the recession is
when businesses begin adding full-time jobs again. This
will restore consumer confidence and spending. But even
then, we will have to continue applying lean principles
to our logistics operations.
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Putting Out the Call
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Request for Proposals
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Requests for proposals and quotations show suppliers
that you're organized, impartial. and growing.
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Generally speaking, logisticians at small- to mid-size
logistics firms make too little use of standard Requests
for Proposals (RFPs) and Requests for Quotations (RFQs).
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Both are important parts of the logistics buying process,
allowing potential suppliers to join the competition to
provide a business with goods or services. The issuer
makes available the specifications and requirements to
several candidates, and then waits for the competitive
responses to be submitted.
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Affordable Supply Chain Technology
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Transportion Management Systems
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Transportation Management Systems (TMS) over the
internet allows any company, regardless of size,
to obtain the benefits of a good transportation
management system.
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Not long ago the high cost of Transportation
Management Systems meant they were used almost
exclusively by large shippers and carriers.
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Well, things have certainly changed - especially
with the advent of "software as a service" or
SaaS as it is commonly called.
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