GE: Bringing Good Things to Trucking?
Its chairman, Jack Welch, is hailed as one of the most important and visionary business leaders of his time.
Truckers, however, view GE in a somewhat different light — a $90 billion corporation with an attitude.
The Stamford, Conn.-based manufacturing and financial services conglomerate spends well over $1 billion a year on transportation services and is unafraid to use its leverage to get the best price.
Mr. Foust left the company last year, but his legacy remains.
He did a good job,” said Paul R. Schlesinger of Donaldson, Lufkin & Jenrette,
n investment banking firm in New York. “He got the lowest transportation rates
n America.”
At a DLJ-sponsored Transportation Technology Conference in New York in April 1997, Mr. Foust said GE saved an average of $500,000 a week over the past five years through a combination of price reductions and increased productivity from its transportation service providers.
How does GE woo carriers with its rock bottom rates?
“He put in a lot of procedures that I’m sure the trucking industry thought was bait-and-switch,” Mr. Schlesinger said.
In other words, carriers put in bids for a certain mix of freight and end up hauling “stuff no one else wanted,” he said.
“GE has such an incredible array of traffic, some carriers feel there is a greater risk that the traffic they wind up hauling will be less attractive and consequently higher cost than what they bid on. It’s true for any large company,” Mr. Schlesinger said.
Indeed, many truckers appear to have a “love-hate” relationship with GE, according to Larry Menaker, a transportation and shipping consultant based in Wilmette, Ill.
“My impression is that you know exactly what you’re dealing with at GE. The rules are consistent. However, the rules are extremely tough and onerous.”
Although no one at GE was available during the past week to talk about the company’s transportation procurement practices, a picture of how the company works can be gleaned from talks with former GE officials, motor carriers and industry observers.
According to J. Duane Weeks, who served for two years as president of GE Capital Logistics, a third-party logistics business, GE’s practices are the best in the world — although he concedes that carriers “don’t like it a whole lot.”
Mr. Weeks left GE earlier this year to form his own supply chain management consulting firm.
I’ve done benchmarking with other companies, including Procter & Gamble and PepsiCo. GE wrote the book,” he said. “They have extracted value and reduced costs dramatically.”
GE entices truckers by offering a large volume of freight in specific traffic lanes. The company ensures there is plenty of competition for the business by conducting a kind of Dutch auction in which carriers are invited to see and underbid their competitors’ bids.
The auction, which in the past has featured flashing lights and high-pressure countdowns, takes place each February in Florida.
“It’s a brutal process if you’re a carrier,” Mr. Weeks said.
Similar auctions for intermodal, rail, ocean and air freight services are scheduled throughout the year.
The prospect of winning a big contract attracts many suitors even though GE’s freight rates likely will make the business a break-even proposition for most truckers.
Ted Scherck, president of the Colography Group, a Marietta, Ga.-based transportation consulting firm, said some carriers are willing to bid below cost because GE’s business allows them to set up a freight network upon which they can add more profitable loads.
“I don’t see anything onerous in what GE is doing,” he said. “They want their family of companies to get the lowest possible rate, and they get it.”
“It’s all very professional and upfront,” Mr. Weeks explained. “We have a lot of business to give out. The downside is that margins are such that a carrier out to make any extra profit must know his costs. We don’t want carriers to go out of business.”
Mr. Weeks believes there is more money to be saved by lowering freight rates, but he doesn’t think there is an “enormous opportunity anymore.”
In fact, some carriers have noticed a recent change in GE’s approach to buying transportation services. It’s a change they attribute to GE’s companywide quality campaign.
Jeff Musik, vice president of marketing for Pitt Ohio Express, a Pittsburgh-based regional LTL fleet that hauls for GE’s transportation, lighting and appliance divisions, said he sees a change away from a “price-driven commodity environment.”
“They put more focus today on what a carrier can do in terms of providing on-time, damage-free deliveries as opposed to just having the least expensive cost per pound for delivery,” he said.
Mr. Musik still meets with GE officials in Florida each year, but instead of cutthroat auctions, he has noticed that GE freight representatives are meeting privately with carriers to discuss contracts and services.
Another sign of change in GE’s relationship with carriers is the company’s willingness to use shippers outside its sizable private fleet operations.
A year ago, Celadon Group acquired a fleet operated by GE Industrial Control Systems based in Fort Wayne, Ind. The deal included a five-year contract with GE Industrial Control, which accounted for half of the fleet’s revenue (TT, 9-1-97, p. 4).
Celadon Chairman Stephen Russell said he was attracted to the business because it offered driver-friendly freight in the same lanes as Celadon’s trucks.
Since taking over the business, Celadon has raised the on-time service level to above 98%. “We’ve demonstrated outstanding service to GE, and that is the key to helping them achieve quality,” Mr. Russell said.
As a supplier, Mr. Russell noted that his company is expected to participate in GE’s quality program.
According to Mr. Schlesinger of Donaldson, Lufkin & Jenrette, more outsourcing of transportation by GE would signal a major change from confrontation to partnership with carriers.
“It recognizes that the lowest price is not always the lowest cost,” he said.
GE is not only a big shipper, it also is heavily involved in transportation equipment financing and leasing. It owns a majority stake in Penske Truck Leasing Corp., which provides dedicated trucking and logistics services.
Transport International Pool is a major trailer supplier. And GE SeaCo., a 50-50 joint venture with Sea Containers Corp., leases marine and domestic cargo containers to shipping lines, railroads and intermodal transportation providers.
GE is involved in third-party logistics and provides electronic data interchange and Internet communications services for businesses.
According to Robert V. Delaney, executive vice president of Cass Information Systems, Bridgeton, Mo., GE appears not to be favoring its own companies in striking transportation deals.
The complex relationships between GE subsidiaries, however, can lead to problems. He recalled an incident where GE signed a contract with Airborne Express to ship packages by air at a rate that was substantially less than Federal Express charged. The deal led to a call to GE’s Mr. Welch from FedEx Chairman Fred Smith, who threatened to cancel engine orders.
