Shippers Commonwealth

Hours of Service & TMS. . . What It Means To You (advanced copy of article to appear in January 2004 Supply Chain Digest)

By Robert Shagawat
President & CEO, Shippers Commonwealth, LLC

There have been several analyses (primarily from carriers) and a whole lot of "noise" lately about the new Hours Of Service starting January 4, 2004, as required by new FMCSA government regulations in the U.S.

The key changes in carrier operations are now well known:

  • Increase in driving hours from 10 hours to 11 hours
  • Increase in mandatory "off duty" rest from 8 hours to 10 hours
  • Reduction in total work time once coming "on duty" daily from 15 non-consecutive hours to 14 consecutive hours
  • All "off duty" time less than 10 consecutive hours or two sleeper-berth hours now accrues toward the 14 work hours, as well as "on duty" and driving time
  • Drivers will be able to "reset" their weekly duty-hour clock once 34 consecutive "off duty" hours have elepsed.

In short, drivers can drive an extra hour but lose one hour of work time and must rest two hours longer. Thus, the driver loses approximately two hours or 8% (2/24ths) of each "day" compared to old rules.

Obviously, less available hours with even the same carrier costs means less available miles to spread the costs over, which will translate into higher costs per mile and longer effective transit times.

How this will impact freight management for shippers or receivers, including in industry use of multi-stop TLs (including those as optimized by leading Tier 1 Transportation Management Systems, or TMS) is not as well understood. Many industries absolutely require TL service (including multi-stop TL) for shipment of their products vs. LTL. These shippers rely on transit time advantages and overall lower cost of TL (where applicable) to take their goods to market on time, defect free, and at lowest landed cost.

Let's review some of the impacts involved with this regulatory change, and some indicated strategies that emerge from this assessment.

Stop-Off Charges Were Already Too Low: Average $50 stop-off charges, as common today (before the 2004 regulation) were probably too low to be commercially viable for many TL carriers in any event. There has always been "room to move" here. This is especially so when considering and accurately measuring normal dwell times at origin and destination, as can be done as part of a TMS program.

TL including Multi-Stop TL Remains Competitive: Use of multi-stop TL, if optimized to reasonable number of sensible stop-offs, still remains more effective in lower cost and transit time than LTL in many cases, even given anticipated increases in stop-off charges varying with cumulative number of stops.

Bully Pulpit: With the new government regulations, it is obvious that the carrier community has now finally been provided with a new platform to advocate its agenda, on need for rate increases and new contract rules and constraints. Carriers are now actively leveraging the regulation to their benefit in negotiations with shippers, often with business cases that are not fully supported by the actual regulatory impacts, in seizing an opportunity to increase rates. However, there is no indication or facts-based argument that there needs to be a radical shift in linehaul rates based on this regulation alone, and shippers retain the considerable leverage of competition in "holding the line" on TL rate increases "across the board".

The TL carrier sector remains as one of the most fragmented markets in North America, and there are many more choices for shipping alternatives than exist in other freight modes. Some TL rate increase requests in the wake of this regulation have been totally "out of synch" with real cost increases in carrier operations. A united front from shippers in containing rate escalation will be key to shipper success in 2004, vs. "panic buying" to lock in capacity at any price, or moving without analysis to LTL or other modes.

How TMS Can Help in Managing The Impact: More than ever, a Tier 1 TMS (with advanced optimization and dynamic execution) is required by most manufacturing, distribution, or retail firms with sales over $100M. This is only reinforced by the new FMCSA regulations. LTL vs. TL tradeoffs on service and cost are now more complex than ever, and demand network optimization for an efficient inbound and outbound shipment planning program. In many cases, even with stop-off accessorial rates increasing, multi-stop TL (where applicable) will still be far most cost-effective than LTL on overall landed cost and transit time. Again, in many industries, such as metals, building products, paper, minerals, to name a few, where LTL is often not a viable option, TL including multi-stop TL is core method of operation, and optimizing this in light of new rules now becomes imperative.

TMS Actually Reduces # of Stop-Offs: It is an established fact that a Tier 1 TMS (those TMS programs with robust shipment planning and execution capabilities for optimal mode, route and plan, including inbound and outbound consolidation and routing) save significant freight cost in multi-stop TL vs. LTL. It is also a demonstrated fact, although not as widely understood, that TMS load building programs actually reduce the number of required stop-offs vs. manual load planning methods.

Key Cost Saving Factors in Optimal Multi-Stop TL Planning: From vast empirical studies conducted by firms like ours with shippers such as Alcoa, Eveready, Stage Stores, to name just a few, it has been demonstrated that TMS load building saves 7 - 15% minimum in freight routing cost vs. manual load building, based on four key drivers:

  1. actually reducing number of stop-offs to deliver same freight;
  2. reducing out of route miles for linehaul savings, while making loads that are carrier-friendly, and receptive to real world constraints, for both carrier and customer acceptance;
  3. enabling "boundary effects" on routing to optimize final destination rates in rating cost of entire multi-stop load, particularly in adjacent states with rate variances, such as DE & MD or NJ & NY; and
  4. enabling dynamic pool distribution where this is optimal alternative to multi-stop TL.

Also, these lower freight costs can be enabled by "taking costs out of system" for all parties, not just by "squeezing rates", as a "win/win" approach to optimizing transportation time and cost, given complex "real world" variables and constraints. The best TMS programs optimize freight in a changing world while always constraining, and trying to minimize, the maximum number of stops in multi-stop TL, or in continuous moves.

Additional & Continuing Savings Opportunities: Of course, TMS is also used by many "LTL only" or "TL only" shippers, for optimal carrier selection and "order to shipment" assignment, including in optimized TL carrier assignment to put the longest length of haul on lowest rate carrier given minimum commitments and maximum capacity constraints. TL savings of 5 - 7% or more have been realized from optimal carrier assignment alone on single stop TL loads. These are among many TMS benefits (including taking control of both inbound and outbound freight) that continue, and which are not directly impacted at all the new hours of service regulations.

Win/Win Planning: Several TL motor carriers, including such leaders as Hunt and Swift, have made useful suggestions as to what shippers and receivers should consider in light of the new regulations, all better enabled by TMS:

  • Consider shipping and receiving provisions so that pickups and deliveries can be made during evenings and weekends if current hours of operation do not allow this
  • Pre-book loads to allow for optimization of load planning by all parties
  • Receivers should accept and comply with appointments for delivery following a reasonable transit time to avoid excessive driver waiting time after arrival
  • Allow drivers to utilize sleeper berths (if tractors are so equipped) when the unload/load process is expected to exceed two hours
  • Shippers who pay for transportation costs should develop incentive programs for receivers who unload trailers efficiently ("pay for performance"); a TMS enables a "pricing per account" and "pay for performance" scenario in assigning costs to consignees on "facts-based" basis, where dwell times and appointment changes are the highest
  • Trailer pools should be made efficient where a driver can drop a loaded trailer and quickly find an empty in a "drop and hook" scenario
  • Conduct an internal analysis (or use your TMS if you have one) for internal analysis of shippers or receivers who have excessive dwell times or dock waiting times.

TMS Now Available and Affordable to All: In this competitive and challenging environment, a TMS is more mission critical than ever to optimize and execute freight on-time at lowest landed cost. While there is a limited number of true Tier 1 TMS providers, software licensing and implementation costs have become more affordable as the TMS industry has matured and scaled in the last 5 years. Furthermore, a new generation of Application Service Provider ("ASP") subscription programs now offered by a few firms can now bring Tier 1 TMS programs to shippers of any size, on a low cost, rapid deployment, "pay as you go" basis.

Assessing Changes For Your Operations: Many shippers are now reaching out to TMS providers to conduct impact analyses on optimizing freight operations before and after the Hours of Service regulations. This is recommended for all shippers to put "facts" in front of the "noise" or "hysteria" on how to continue to manage transportation efficiently in a more complex and rapidly changing logistics environment.

Robert Shagawat is President & CEO of Shippers Commonwealth, a leading Tier 1 TMS provider, with successful track record in establishing over 70 major Transportation and Load Control Center programs since the late 1980's. Further information is available at www.shipperscommonwealth
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