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 the 14th annual Masters of Logistics survey.

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 survey.

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.

The 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.

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.

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.

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 hours-of-service restrictions.”

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.

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.

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 confronting.

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 contract carriage.

On the opposite end of the scale, only 1.5 percent had implemented a reverse auction for carrier bidding.

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.”

Source: Capgemini supply chain and procurement newsletter

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