Forum Summary Tuesday October 21st, 2008
'Budgeting For Freight Expenses In 2009'

Have We Dodged The Bullet?
It was not long ago that some experts were predicting a $200 per barrel price for oil but Dr. Warren Jestin of Scotiabank warns, “Don’t get fooled by the drop in fuel prices. They will go back up.” Have we dodged the bullet here in Canada? Although Canada is night and day to the US with our banking system, we are still impacted. US’s “borrow to buy” model is not in Canada and that sub prime idea proves that not all innovation is good. “Step back and understand the fundamentals,” advised Dr. Jestin.

Canadian Banks are in Good Shape
For the last 15 years the US has used the “borrow to buy” model which was most prevalent in housing. There were a record number of Americans owning their own homes but the model could not be sustained. Consequently, the US is deleveraging and with 18 months of housing inventory to clear, this will take years.

The core message is that the growth rate of China is above 10% and even if it slows with the global problems, it will drop to 8% which is still a very attractive opportunity for investment money, compared to the US growth rate of 1% to 3%. Inevitably, there will be a shift in where foreign investment flows and this will affect our economy.

Fuel Prices Will Return to Highs
As for fuel prices, Dr. Warren Jestin predicts that the Canadian dollar will recover from its current weakness as the demand for commodities strengthens and recessionary fears subside. Oil is being used less as companies become more productive. Ultimately, China will determine the price of oil and it is on a growth trajectory.

We all know that investor and consumer confidence is down. A drop in car sales is happening and housing will also be slowing for the next two years. Do not get despondent as Canada is in better shape than most of the world, but we are part of a volatile world economy. Our Canadian dollar has demonstrated impressive volatility causing headaches for manufacturers, exporters and companies with US customers. The currency will rise again and commodity prices and will return to their higher levels.
The US is still borrowing to buy in order to solve its problems using foreign borrowings this time. Global investors are already looking critically at the US dollar and attention will shift to these high growth markets and weaken the value of the dollar. As Dr. Jestin closed, he said, “The take home message is do not expect business as usual.”

Design Your Freight Program
It goes without saying that the manufacturing and retail industries are slowing and this is a challenge to the status quo. A well designed freight program can add good value. “Many companies are asking ‘What can we do well here in North America? Credit is tight and how can we make better use of the dollars we do have?’” said Dan Goodwill, a specialist in Logistics. “A good place to start is where there are opportunities for cost savings and logistics offers many hidden opportunities.”

Goodwill suggests that the key is to actively look for paradigm shifts. In other words - change from one way of thinking to another. Examples of opportunities to change the way you do things now are:

1.     Examine your inland freight costs – they are a missed opportunity. Look at alternative logistic venders and change your requirements. Could you live with longer lead time of five days instead of two and go for a lower price? Revisit your economies of serving your own market and see where you can be flexible.

2.     Check your assumptions about the cheapest and best ways. There was a time when if comparing box cars and trucks and you were doing a bid - the truck rates were better than the car load. This has shifted.

3.     How can you leverage your freight smarter? For example, are there ways you can make life easier for your carrier? Are you asking them to arrive at four in the afternoon and then sit there waiting, charging up your fee?

4.     Look to your customers’ needs. For example, Shoppers Drug Mart has inbound freight from many vendors and wants to manage that freight cost as it is a good opportunity to save money. Instead of 3,000 incoming vendors, it wants to go down to 1,000. How can you help your customers simplify, streamline and save money?

5.     Understand your true costs.

Your Clients Will Like You Green
“Top companies are creating score cards for going green and stewarding the environment,” says Edmund Rucels, a specialist in packaging. “Today, green awareness means winning and keeping clients – it is no longer just about saving money. If you can demonstrate how your operations are helping reduce your customers’ carbon footprint, you will have loyal and grateful clients.”

Packaging seems to be an obvious place to start but in large companies, it is a major part of the supply chain. The package does not belong to one department and can be a complex process to change. Wal-Mart reduced packaging and achieved a $3.4 billion savings in the first year that they introduced the program.

Case Level Optimization
Currently, many companies are shipping a great deal of air. A few quick checks to see how to reduce carbon imprint are:
Know Your Fill Rate: When asked in surveys, managers will say they are shopping with an 80% fill rate; often it is more like 60%. That is a great deal of money to ship 40% with a zero value.
Check your Packaging: To mitigate damage, the thick corrugated box is used to save the product. You do not need a big, thick box to protect the product. Instead, you can rework your SKUs and there are experts who can help with this process.
Reduce Pallets in Play: There are more pallets out in the system than required which allows for easy decisions rather than a smarter approach to reducing costs. If you bring down the pallets, you can force savings.
Spacing on Each Pallet: There are underutilized spaces on the pallets. This is valuable real estate, with every centimetre is worth money. By watching for underutilized pallet real estate, employees can look for ways to stop shipping empty air.

With these programs, you will develop a good strategy for shipping. You will ratchet up the density of shipping, reduce your damage and find savings for yourself and clients. As a result of focus on case level optimization, Edmund Rucels says his clients have achieved up to 40% savings on transport, storage and handling. This adds up to a great deal of carbon reduction and a greener happier customer and planet.

The author, Jacoline Loewen raises capital for growth companies with Loewen & Partners and she is the author of Money Magnet: How to Attract Investors to Your Business.