Q&A: Larry Gross, President of Gross Transportation Consulting

Logistics Management Group News Editor Jeff Berman recently caught up with Larry Gross, President of Gross Transportation Consulting to talk about the 2018 Peak Season, capacity, pricing, and things shippers can do to get through the rough patches. A transcript of their conversation is below. 

Logistics Management (LM): What are your initial expectations for Peak Season?

Larry Gross: I think I have some concerns over the peak season, not in terms of if it will arrive…it is going to arrive But in terms of the industry’s positioning to meet demand, I think, is a little bit questionable.

LM: In what ways?

Gross: Ocean capacity is not an issue. If anything, the sector continues to struggle with too much capacity. In trying to match capacity to demand, you get a lot of volatility in schedules, with ship sailings being [cancelled], which makes a shipper or supply chain manager’s job more difficult and reduces schedule reliability for the ocean carriers.

I think the bigger problem is what happens after the container lands for the large percentage of shipments that are purely domestic.

LM: How does intermodal factor into to Peak Season planning for shippers?

Gross: It used to be that shippers always had option in their pocket. If trucking was tight, there was an intermodal option, and if intermodal service was messed up they had a truck option.  And this year, given what is happening with capacity, there is not a good option because truck capacity is very tight and so is intermodal capacity, which is extremely tight.

LM: So, what are the best options for shippers, given all the tight capacity?

Gross: The question is: what do you do? I am definitely advising folks to move volume earlier. You just will not be able to count on, unless you line it up, having capacity sort of available when you need it. 

It is not a question of price….it is whether or not capacity is available for the timeframe you are looking for it at any price. So you better be flexible with what you are looking for unless you have it all lined up already

LM: That said, what are the consequences for shippers that act too late?

Gross: If you don’t have everything lined up already, I think you are going to be in a hurtful position.

LM: How does pricing factor into Peak Season planning?

Gross: Ocean [pricing] follows no logic, and truck, and intermodal rates are going through the roof. The spot market is an indicator but contract rates follow the spot rates in a more sustained and sedated manner and will still follow.

LM: How would you describe the current state of rail and intermodal service levels?

Gross: I have specific concerns on the intermodal side in terms of equipment velocity, because intermodal train speeds are dropping and continue to drop, which reduced equipment velocity and productivity basically just at the time that you want to be operating at peak efficiency… so the fact that trains are running slower is shooting up capacity.

And that does not even take into account the fact that if they are really running slower, they are really running late. Running late is worse than running slow, because you break appointments and trains bunch up.

There are huge issues on the drayage side in terms of specific markets being very tight in terms of dray. There are a number of potential weak links on the intermodal side that would conspire to make the capacity situation more acute. October is usually about 8% busier than June on the domestic side. It’s a concern.

LM: Is it surprising, in any way, that there is not a huge material improvement in regards to rail service despite solid volume levels?

Gross: It does not speak well to the industry that even a modest uptick in demand causes these issues. It is an indication that the strategy needs an adjustment, and there is certainly a tremendous amount of focus right now on operating efficiency by running long trains and lowering operating ratios.

LM: Is this the most uncertain Peak Season ever in terms of capacity concerns?

Gross: You would have to go back to when HOS changes took effect in the 2003-2004 period to see anything remotely resembling this. There are a large percentage of managers in the supply chain arena whom have seen this before, but, for others, it is a totally novel experience and not just to have a scenario with tight capacity.

But not being able to get capacity when you want it is a very novel thing for many folks

LM: How do TMS and digital freight brokerage systems factor into these things?

Gross: There are many tools out there that have made the spot market more accessible to buyers of transportation and over time they have saved a lot of money rather than put a bunch of freight out to contract.

You had good and bad freight and you mixed it up an gave everybody a little bit of each….instead now you can slice and dice the market using all of these tools on the assumption that the capacity would be there and you had a tool to reach for it, but when you operate in the spot market you are tremendously vulnerable and that is what these folks are talking about and paying for it.

LM: How do you view the current elevated spot market rates?

Gross: It is not a surprise that spot rates are high. There appears to be sort of a confluence between ELD effects and some acceleration in the economy.