This Week in Logistics News (October 28-November 1, 2013)

By Adrian Gonzalez

From the family room, I heard my 11-year old son crying in the kitchen being consoled by my wife. I assumed it was related to something that had happened at school that day.

I was right about the school part, but wrong about the reason.

In science class that day, the teacher was trying to get a point across to the class, and in her attempt to relate it to something the kids could understand, she said, “it’s like the tooth fairy, and none of you believe in the tooth fairy any more, right?”

I don’t remember how old my son was when he lost his first tooth, but that was the night Toothy came for the first time, not long after he fell asleep. She took his tooth from underneath the pillow, left behind a dollar bill and a handwritten note thanking him for the tooth, and then she came back to bed and kissed me goodnight.

“Do the other guys know?” my son asked in between sobs, meaning his siblings. “I don’t think so,” my wife said. “Well, I don’t want them to know, and I’m not going to tell them,” he said, and he hugged his mom, head against her heart, and the two of them remained embraced like that for some time, as I walked by the kitchen to get the other kids ready for bed.

Later that night, the Red Sox won the World Series, and my son was there with me, jumping around, and fist-pumping, and smiling like the players on the field. “Look at them, they’re like little kids,” I said pointing at the television, and my son just smiled watching the players pile on top of each other near the pitcher’s mound, “I know,” he said with glee, “I know.”

In other news this week…

Con-Way this week reported 2013 third-quarter net income of $30.6 million, up almost 21 percent from Q3 2012. The company’s Menlo Worldwide Logistics group reported revenue of $380.5 million, down 11.0 percent from Q3 2012. However, net revenue, which excludes purchased transportation, increased 8.2 percent in the quarter compared to the previous year. Commenting on Menlo’s results, Con-way’s president and CEO Douglas W. Stotlar said:

“Menlo is implementing several large new projects, which have contributed to growth in net revenue while also having an adverse impact on operating income. As these projects become fully operational, we expect their negative impact on operating income to subside. Despite the expected margin improvement from these projects, increased employee costs and IT investments [emphasis mine] may constrain Menlo’s income growth next year.”

It’s interesting how companies refer to money spent on employees as “costs” while money spent on technology are “investments.” Maybe I’m reading too much into it, but with the growing importance of finding and retaining talent in the logistics industry, we ought to change our perspective and actions with regards to the people side of supply chain management. And in fact, Menlo is investing in people, in developing supply chain and logistics talent, as another press release issued this week shows.

The financial press release also provided some perspective on the truckload market: “Con-way Truckload recorded a slight increase in revenue for the third quarter while operating income declined, reflecting a weak demand environment and cost headwinds [emphasis mine].” And with Hours of Service (HOS) starting to impact productivity and driver turnover on the rise, those headwinds are bound to pick up in the weeks ahead.

Need some justification to invest in route optimization and telematics technology? According to UPS, a reduction of just one mile each day per driver over the course of a year saves the company up to $50 million annually! Obviously, few other companies compare with UPS in terms of fleet size and scope of operations, but many fleet operators have the opportunity to save tens or hundreds of thousands of dollars per year by replacing their spreadsheets and manual operations with optimization technology.

The savings number came from a UPS press release issued this week announcing the launch of its route optimization software known as ORION, which stands for On-Road Integrated Optimization and Navigation. Here are some details from the release:

The rollout of ORION will optimize 10,000 delivery routes by the end of the year, reduce miles driven and reinforce UPS’s sustainability efforts

ORION consists of more than 250 million address data points. The sophisticated software combines customer’s shipping requirements with customized map data the company has compiled to provide UPS drivers with optimized routing instructions that meet service-level requirements, while reducing miles driven

ORION is the result of a long-term operational technology commitment, more than a decade in the making. To gather the necessary data, UPS operations research scientists began piloting telematics technologies with the installation of advanced GPS tracking equipment and vehicle sensors in 2008. The integration of these technologies allows UPS to capture data related to vehicle routes and performance and driver safety. The driver’s handheld mobile device and telematics technologies combined with custom mapping data and ORION algorithms provide more efficient routes for UPS drivers.

One of my predictions for 2013 was that we would see increased adoption of alternative fuel vehicles. And back in May, I wrote that we’re getting closer every day to reaching the tipping point for greater adoption of natural gas long-haul trucks. An article in the Wall Street Journal this week shed some light on the growing momentum. Here are some excerpts:

Operators of some of the largest U.S. truck fleets, including Lowe’s, Procter & Gamble, and United Parcel Service are accelerating a shift to natural gas fueled trucks [emphasis mine], betting on new engine technology that promises to drop the cost of shifting from diesel fuel.

Long-distance trucking companies, like Con-way, Schneider National, Swift Transportation, and Werner Enterprises are testing compressed natural gas and liquefied natural gas powered trucks as they awaiting more powerful engines and a nationwide fueling and repair infrastructure. Higher initial cost for vehicles, scant natural-gas vehicle suppliers and fuel availability have been impediments.

Still, trucking companies see longer term benefits. Ryder Systems, one of the largest buyers of trucks in the U.S., is quickly adding natural gas to its 50,000-truck fleet [emphasis mine], but just how fast it will grow depends on how much truck prices come down and how fast fueling stations pop up, said Scott Perry, vice president of supply management, for Miami-based Ryder. “I think 10% to 20% is realistic,” within five years. “But we still have to see about all the variables.”

As Bill Lee, Vice President at Breakthrough Fuel, said in the mega session I moderated at last week’s CSCMP Annual Global Conference, companies need to think more strategically about managing the energy that is used to move product to market. And while natural gas is a growing factor, it’s important to keep the bigger picture in mind — that the energy footprint is more diverse and dynamic than ever before, as the picture below that Bill shared with the audience exemplifies.