Fleet’s Choice Site Creates Edge by Saving Miles, Fuel

This story appears in the May 11 print edition of Transport Topics.

Twenty-seven years ago at a bankruptcy sale, New England Motor Freight bought 22 acres at the Port of New York & New Jersey for just over $1 million.

Today, land at the port is selling, conservatively, for $2 million an acre, said Tom Connery, chief operating officer of NEMF, the regional LTL carrier that is part of the Shevell Group.

“We were offered a huge amount of money by a couple of the steamship lines within the last 24 months,” Connery said.

When the firm bought the site more than two decades ago, it was for a new headquarters, not because it was actively seeking out a leaner, greener supply chain.

Today, however, rather than cash in by selling the land, NEMF is its exploiting the location to reduce fuel expenses and emissions from its supply chain.

Trucking executives and consultants told Transport Topics that not only is a reshaping of the supply chain currently under way, but in the future, the resulting changes will influence everything from international trade patterns to where distributors and truck carriers locate their facilities.

“There’s empirical data that says there’s a major shifting of the whole supply chain,” said Tommy Hodges, chairman of Titan Transfer Inc., Shelbyville, Tenn.

He said the fuel spike last year — with its cost and emission dimensions — had become the “catalyst” for the shift.

As a result, rural distribution centers are no longer in favor, intermodal is growing and the length of haul has shortened, he said.

“Trucking companies are going to have to fundamentally re-think their business models, and that’s going on right now,” said Hodges, who is vice chairman of American Trucking Associations and chairman of the federation’s Environmental and Energy Policy Committee.

NEMF, for example, exploited its location by having U.S. Customs and Border Protection authorize the site as a container freight station. The authorization means NEMF can dray containers, clear customs for its shippers and load the freight directly onto its trucks, eliminating the need for distribution centers and warehouses.

“There’s no doubt we’re cutting emissions,” Connery said. The warehouse is out of the equation. “We’re taking out an entire step in the supply chain,” he said.

“We can split a container into 25 individual LTL shipments going directly to the end-user, as opposed to bringing it in here, sending it to a warehouse out in Lancaster, Pa. . . . then turning it back around and trucking it back into the Northeast,” Connery said.

Con-way Inc., one of the nation’s largest freight haulers, has taken a similar route, exploiting its combined truckload, freight brokerage, cross-docking and LTL assets to offer a shorter supply chain that also bypasses warehouses and distribution centers.

“What we found is that a lot of [shippers] in this current economy are finding themselves with distribution centers in the wrong places,” said Tom Nightingale, Con-way Freight’s chief marketing officer.

“In a different market with a different demand profile,” Nightingale said, “they set up centers and warehouses in places that are no longer core to their operations, so they are looking to their carriers to find lower-cost ways to get to market.”

Under its new consolidation and distribution service, Con-way’s truckload unit picks up freight from ports or manufacturing sites, hauls the goods to one of nearly 300 Con-way cross-docks across the country and divides the shipments to load directly into Con-way’s LTL network.

Cutting transportation costs — not emissions — was the driving force behind the new service, Nightingale said.

The result is the same, however, to John Morris, a partner in real estate firm Cushman & Wakefield’s consulting company.

“Miles are the enemy and, clearly, fuel and sustainability are really the same issue,” Morris said, citing studies his firm has done.

“As ‘green’ becomes a concept for which customers have an increasing affinity,” one Cushman & Wakefield study said, “supply design will migrate towards less carbon, which mirrors less fuel.”

Hodges said that fuel costs and emissions are two different things, but “in a good or in a bad market, if we can figure out how to improve our fuel economy . . . or if we can have better payloads or haul bigger loads [to] make fewer trips, then all these things will positively impact our carbon footprint.”

Morris said that last year, when fuel prices were breaking records, the phone in his Chicago office rang off the hook.

The firm could hardly keep up with the cries for help from shippers and manufacturers desperate to cut transportation miles from their supply chains, he said.

In July 2008, Morris said, the nation and the transportation industry crossed an important threshold.

“On average for a longhaul dry van truckload, fuel became the single largest cost component of trucking transportation, according to our pro forma calculation, about 37% of total cost,” Morris said.

When that happened, companies went from “a more passive approach to optimizing miles, compared to nodes and [began] aggressively seeking to pull miles out of the network,” he said.

Since the high fuel prices last summer and the onset of the recession, the phone in Morris’ office has gone dead.

Con-way’s Nightingale tells a similar story.

“Our Menlo Worldwide logistics business unit saw a massive spike in requests for re-optimization of customer supply-chain networks and in the first, really, two-thirds of . . . last year,” Nightingale said. “And then, fuel dropped back down, and the economy went into the tank and people’s priorities became a little different.”

Morris said he is confident that his phone will be silent only temporarily. He expects the economy to start reviving and fuel prices to begin rising in November.

Then fuel costs, combined with what his firm sees as increasing regulation around emissions, will drive shippers and haulers to redesign supply chains, he said.

According to the consulting firm’s studies, fuel and emissions concerns will override labor and land costs so strongly that shippers and freight firms will scramble for real estate closer to ports and to cities.

Smaller and more numerous distribution centers in urban areas will trump larger, rural locations, Morris predicted.

“When you take miles out [of the supply chain], you add facilities in,” he said.

Joe Roeder, president of logistics and distribution for NFI Industries Inc., with headquarters in Vineland, N.J., agreed the “pendulum” is swinging away from large, remote facilities.

“That model’s changing now with . . . higher emissions standards, higher fuel costs and traffic patterns,” Roeder said.

A national firm with fleets and intermodal facilities across the country, NFI is opening a new warehouse and distribution facility along the New Jersey Turnpike, to add to its three locations already in New Jersey.

The new million-square-foot facility is specifically for a large food manufacturing and dis-

tribution company whose freight NFI handles.

The manufacturer wants to be positioned at the turnpike near large population centers, Roeder said. He declined to identify  the firm, however.

Like others interviewed, Roeder said that fuel costs and the desire for a greener supply chain are also driving intermodal growth.

When NFI opened its intermodal division in 2004, Roeder said, the division accounted for 1% of the firm’s overall revenue. Today, intermodal runs are rising 30% to 40% annually, and the division accounts for 7% of NFI’s revenue, he said.

NFI also has heavily increased its presence in Southern California to take advantage of the nation’s largest port complex, Roeder said.

Cushman & Wakefield’s Morris said proximity to ports and manufacturing centers will be crucial for freight firms trying to offer shorter, greener supply chains to shippers.

He also sees changes to traditional patterns of years past.

For example, the current widening of the Panama Canal will make it possible for larger container ships to sail directly to ports in the Houston-Galveston area and all the way to the New York-New Jersey port, instead of the West Coast.

Morris also predicted that fuel costs and climate change concerns would drive manufacturers to shorten supply chains by moving into Mexico from China.