Cargo Road Transport - the perspective of shipping companies

By Maria Fernanda Hijjar

Transport costs represent more than 60% of the logistics costs of large Brazilian industries, making executives turn their eyes to this activity in search of opportunities to reduce expenses. But the troubled period of the Brazilian economy has raised many doubts in relation to what will happen to the transport segment, especially in the road freight modal. If, on the one hand, cost items are increasing (inflation of vehicle inputs, high diesel prices and drivers' wages), on the other hand, demand for cargo handling has decreased, making it difficult to pass on cost increases to freight prices. This scenario is causing many carriers to file losses, increasing the risk of bankruptcies.

On the side of shipping companies that hire transporters, the downturn in the economy brought the opportunity to renegotiate freight prices, as the market became very offering, and there was surplus capacity in trucks. However, the pressure to reduce freight prices increases the pressure on carriers, increasing the risk of interruption of services due to the lack of financial breath of transport companies.

In order to understand what actions are being taken by contracting road transport companies during the crisis period, ILOS carried out a survey with 100 large cargo shipping companies in Brazil, belonging to 14 different economic segments. The results of the survey showed that 78% of the companies have a formal action plan to reduce transport costs, with the vast majority regularly monitoring the effective actions being taken to implement this plan (Figure 1). But while many companies are focused solely on realizing new bids of the market, seeking to find carriers that charge cheaper prices, others prioritize the realization of projects that generate greater productivity in operations and consequent cost reduction, not just a reduction in prices for service providers.

Productivity improvement actions usually bring more lasting and effective results, leading to real gains for the companies, without increasing the risk of failure in the transporters' services.

Source: Panorama ILOS – Cargo Road Transport 2016

The search for productivity improvement in transport can be a very complex task, and one that is still not carried out to its full potential by Brazilian companies.

The survey carried out by ILOS identified the best practices in road transport adopted by shipping companies in two major action fronts: Management e More of transport.

In the analysis on the Management aspects such as: contracts with carriers, freight payment methods, readjustment rates and performance indicators were addressed. Within the More, were analysed: loading/unloading times, the existence of load sharing, delivery time windows, scheduling and traffic centers.

Based on the questions assessed, the ILOS identified whether each company would be classified as a company that still needed to Develop, if it was already Under development, or if it could be considered as Reference in transport. The scale took into account the differences between economic sectors, as it is known that companies in different segments have specific needs and complexities. For example, a company belonging to the agribusiness sector was less demanding in terms of contract with transporters compared to companies in the pharmaceutical segment. Thus, a company that carried out all the transport actions expected for a company in its economic segment would reach a “transport development coefficient” of 100%. A company that did not carry out any of these good practices would have its coefficient equal to 0%.

The results of the methodology showed that, on average, the “coefficient of development in transport” of Brazilian companies is 74% (on the scale from 0 to 100% created by the ILOS). It was recorded that 11% of the companies still had a lot to develop (because they reached a coefficient of only 60% or less). But most companies (61%) could be considered Under development with regard to transport activities, as they reached a coefficient between 60% and 80%. Companies considered as Reference in transport they add up to 28%, having reached a coefficient above 80% (Figure 2).

Source: Panorama ILOS – Cargo Road Transport 2016

When analyzing separately the aspects of Management e More, it is noticed that companies are more efficient in the activities of Management than in carrying out More proper. While the Management of transport is already on the border of being Reference (average coefficient of 78%), the More of this activity is still Under development (average coefficient of 69%), which shows a certain difficulty for companies to put into practice what they planned.

Transport management

The monitoring of performance indicators is among the main actions of Management transport carried out by cargo shipping companies. The most used indicator is compliance with the delivery deadline, monitored by 94% of the large contracting freight companies in Brazil. In the list of the most used indicators are also compliance with the shipping schedule (monitored by 93%), as well as the monitoring of damages and contamination of cargo that eventually occur (monitored by 92%).

Other indicators such as customer complaints, accidents, theft and loss, and vehicle conditions are also regularly monitored by a representative portion of Brazilian cargo shipping companies (Figure 3). It is worth mentioning, however, the monitoring of vehicle conditions, which are more frequent in sectors such as chemical and petrochemical and pharmaceutical. This indicator, in the distant past, was of little relevance to companies, and an aging fleet was a common characteristic for Brazilian trucks. Over time, and with the incentives for fleet renewal adopted by the country, this indicator gained strength, and became a requirement for many transport contracting companies. Currently, although the requirements regarding the fleet still exist, the age of the vehicles has become less demanded by the companies, and the renewal of trucks has lost strength, pointing to a new aging of the Brazilian fleet in the near future.

Source: Panorama ILOS – Cargo Road Transport 2016

On the other hand, the point related to Management The most neglected by Brazilian companies concerns the measurement of possible labor liabilities that may arise from transport and self-employed drivers: 68% of companies do not monitor possible labor liabilities related to the outsourced use of road transport (Figure 4).

The labor rules that came into effect with the new Driver's Law increased the risks for companies contracting freight services, and 8% of these companies have already been forced to assume some labor liability as a carrier or self-employed.

Labor risks can be minimized by signing contracts with service providers. But due to the troubled period of the economy, with uncertainties in relation to demand and prices, most of the contracting companies chose not to stick to contracts with their service providers. Precisely because they were unable to predict how much transportation would be needed in the future, and also because they were free to hire different carriers offering lower prices, the number of companies with a formal contract with their transport operators dropped from 94% in 2011 to 84% in 2015. The average length of contract also fell, from 24 months in 2011 to 20 months in 2015. Industries in the construction material segment are those that least sign contracts with their carriers: only 40% have contracts, and the remaining 60% do not and do not intend to formalize this provision of services in the future.

Source: Panorama ILOS – Cargo Road Transport 2016

Transport operation

when it comes to the More of transport itself, the ILOS identified great opportunities for improvement for cargo shipping companies. Reducing loading and unloading time, as well as waiting time in line for trucks, is an action that must be constantly carried out by companies, as this is a cost that can be quite representative in the transport operation as a whole, especially for short distance deliveries.

In Brazil, the average loading and unloading time, including the queue, is 5,5 hours (Figure 5). The food and beverage and retail trade sectors are the segments where the longest times are computed (10 hours on average). This time is considered a little or zero productive period. As the truck is the main asset of road transport, and the driver is the highest cost of labor, leaving them idle generates losses for the company, as it ends up needing more vehicles to cover the low utilization and unproductivity of the operation.

The establishment of time windows for the arrival of trucks is an action that can be used to reduce vehicle waiting times. In Brazil, on average, 47% of deliveries by large Brazilian companies are made within pre-established time windows with customers, which indicates an opportunity for improvement for the remaining 53% companies that still do not work with delivery windows.

Source: Panorama ILOS – Cargo Road Transport 2016

It is also worth mentioning the opportunity to schedule deliveries, especially fractional deliveries. Scheduling consists of scheduling the arrival of trucks with the products requested on specific days of the week for each customer. In this way, customers from the same group will receive their orders on 1 or more specific days of the week.

In Brazil, 77% of large shipping companies carry out some scheduling initiative: 48% have a pre-established day of the week for most deliveries, while 29% pre-define these dates for the minority of deliveries. For the future, the segments that are most looking to increase the schedule are pharmaceuticals, electronics and automotive.

In the search for greater use of vehicles, it is also worth mentioning that some Brazilian companies allow and encourage carriers to share cargo with other companies in the same truck used by the company. This practice takes place in 44% of Brazilian industries and should be used whenever possible. It is known, however, that in most cases, it is the transporter who is responsible for achieving the sharing.

Finally, the study carried out by ILOS shows that only 23% of the large cargo shipping companies in Brazil set up their own Traffic Centers to manage their transport operations in an integrated manner. Also called Operations Centers or Traffic Control Towers, these command units are responsible for coordinating transport operations as a whole, generating visibility and identifying opportunities for synergies between the company's operations. In general, a Traffic Center acts in the programming, execution and follow-up of the cargo handling activities of all the company's units, capturing transport needs, activating transporters and acting to solve possible problems. As it is a centralized operation, it is possible to obtain great visibility to take advantage of synergies in different routes, allowing an increase in the use of return freight, enabling the performance of benchmarking between operations, among other benefits that guarantee greater efficiency and productivity in transport.

Although not many companies have already implemented their own Traffic Centers (22%), it was identified that 19% intend to implement this centralized control in the future, and that 21% use the Traffic Centers of their carriers (Figure 6).

Source: Panorama ILOS – Cargo Road Transport 2016

Conclusions

Road transport is the biggest logistical cost for companies. Operating and managing this activity requires complex tasks, which still present great opportunities for improvement.

In Brazil, 28% of cargo shipping companies can be considered as Reference in transport, but the vast majority are still under development or have a lot to develop. The biggest shortcomings are in More of this activity itself: reduction of loading and unloading times, scheduling of delivery times, scheduling, load sharing and adoption of Traffic Centers are examples of points to be improved.

With respect to Management of transport, the task of monitoring performance indicators has already been carried out by the vast majority of companies, but it should be noted that companies still need to better monitor the possible labor liabilities they assume when hiring their transporters.

References

• Panorama ILOS – road freight transport: the perspective of contractors – 2016 edition
• Fleet reduction with the scheduling of the fractional distribution operation, Paula Arantes.
• Central de Tráfego: evolution in the transport management model, Arthur Hill – Article from Revista Tecnologística (www.tecnologistica.com.br).