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Talking Freight

Perspectives from Freight Transportation Users

January 21, 2004 T alking Freight Transcript

Operator:

Please stand by.

This is the FHWA Talking Freight Seminar. Please stand by. Ladies and gentlemen. Thank you for standing by. Welcome to the Perspectives from Freight Transportation Users Seminar. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. If you have a question, please press the 1 followed by the 4 on your telephone at any time during the presentation. At that time your line will briefly be accessed from the conference to obtain information. As a reminder, this conference is being recorded, Wednesday, January 21, 2004. I would now like to turn the conference over to Jennifer Seplow. Please go ahead.

Jennifer Seplow:

Thank you. Good afternoon or good morning to those of you to the West and happy new year to all of you. Welcome to the seventh seminar in the talking freight seminar series and the first seminar of the new year. My name is Jennifer Seplow, and I will moderate today's seminar. Today's topic is perspectives of freight transportation users. Please be advised that today's seminar is being recorded. Today we have two speakers, Linda Neal and Chris Campbell. For those of you who may have noticed we were scheduled to have a third speaker, Jeff Tew of General Motors but he had to cancel due to a last minute emergency.

Linda Neal is a transportation specialist for Syngenta Crop Protection (formerly, Novartis/Zeneca, Sandoz/Ciba).. The company has 20,000 employees in 90 countries, headquartered in Basel, Switzerland. As a transportation specialist, Ms. Neal conducts Analysis and evaluations on transportation issues ranging from mode selection, carrier selection, freight payment issues, data retrieval tools and budget setting processes and projections.

Chris Campbell is Sr. Manager of Transportation for Philips Consumer Electronics, a division of Royal Philips Electronics. Royal Philips Electronics of the Netherlands is one of the world's biggest electronics companies and Europe's largest, with sales of 31.8 billion Euros in 2002. It is a global leader in color television sets, lighting, electric shavers, medical diagnostic imaging and patient monitoring, and one-chip TV products. Its 166,500 employees in more than 60 countries are active in the areas of lighting, consumer electronics, domestic appliances, semiconductors, and medical systems. With over 100,000 patents, Philips is a global leader in innovation and design. As a Sr. Manger of Transportation, Chris oversees the outbound activities related to Shipment Planning, Carrier Performance and procurement, and Transportation cost targets. From analysis to Customer requirements and Government regulations, Chris is actively looking for new innovations to reduce cycle time and increase the speed to market while maintaining cost efficiencies and improving service levels.

The presentations for this seminar are available on the FHWA Office of Freight Management web site. I will send out the web address in a seminar follow up email.

I'd like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. The Operator will give you instructions on how to ask a question over the phone during the Q&A period. However, if during the presentations you think of a question, you can type it into the smaller text box underneath the chat area on the lower right side of your screen. Please make sure you are typing in the thin text box and not the large white area. Presenters will be unable to answer your questions during their presentations, but I will use some of the questions typed into the chat box to start off the question and answer session in the last half hour of the seminar. Those questions that are not answered will be posted to the Freight Planning LISTSERV, which will be discussed momentarily. If at anytime you would like to zoom in on the slide that is showing on your screen, you can click on the zoom icon at the top of your screen. It looks like a magnifying glass with a plus sign in it.

Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site in the next day or so. To access the recorded seminar, please visit Talkingfreight.webex.com and click on the "recorded events" link on the left side of the page and then choose the session you'd like to view. Due to the size of the file, recorded files are available for viewing/listening purposes only and cannot be saved to your own computer. We encourage you to direct others in your office who may have not been able to attend this seminar to access the recorded seminar.

We will wait until 1:00 and then begin with the presentation of Linda Neal.

Operator, what time are you showing?

I am showing exactly 1 p.m. eastern standard time.

We will actually get started right now. Linda, are you ready?

Yes.

okay. I will turn it over to you.

okay, everybody, it's about 1:00. So I am going to turn the presentation over to Linda Neal of Syngenta Crop Protection. Linda, please go when you are ready.

Linda Neal:

Okay. Good afternoon. Just to give you a brief overview of what Syngenta is -- Jennifer?

Yes?

Okay. I don't have possession of the screen yet.

I'm sorry about that. Are you okay now?

No.

Let's see. How about now?

Not yet.

Ladies and gentlemen, I'm sorry for this brief delay. Did that work?

Yes.

Okay. Ladies and gentlemen, I'm sorry. Linda, please go ahead.

Linda Neal:

Okay. To give you a brief overview of who Syngenta is, as Jennifer had mentioned earlier we are an agribusiness focused on delivering better food for a better and just some history, we originally were Ciba-Geigy, then the name was shorted to just Ciba, then we merged with Sandoz to become a new company Novartis, Novartis meant new beginnings. Shortly after Novartis merged with Zeneca and we became a new company, Syngenta. As you can see, our name is a combination of two names that means bringing people together. We are a leader in product innovation, and we have several portfolios that we offer to the growing public. We have flowers and vegetables, and basically we provide products that, for example, we have products that prevent blush on roses. We professional products that we offer to places such as golf courses. We have products that would actually inhibit the growth of the grass so you wouldn't have to mow it for an extended period of time. We also have insecticides that protect plants and vegetables from beetles, fire ants. We also have fungicides that prevent mildew for any type of vegetable or plant. We have herb side, nonselective which kills all that it touches and we have selective herbicides which kills only specific weeds. In our distribution network, we have five plants, and those plants are located in St. Gabriel, Louisiana, Omaha, Nebraska, Houston, Texas, Pasadena, Texas and Alabama. We have public warehouses or distribution centers across the united states and we have a total of about 23, and we have 34 tollers which are basically companies that actually make production for us. We have a distribution cycle that is incorporated into two different channels. We have a channel sale which would provide product to distributors, wholesalers and retailers, and we actually have end user customers which would provide product to the farmers, industrial use are -- users and a governmental agency. The modes that we lies in this type of transportation with the ones you see on the screen, small truckload, busload and package. We are trying to move towards obtaining the most efficient cost production for our our product, having said that we would look to move more bulk product over to the transportation side of the business, for comp efficiencies, having a trade-off in transit time. The transit time would be longer but the efficiencies would be there. We are also looking at truckload to trailer flat car and that again would be cost efficiencies and we would trade- off the transit time. We are also looking at less than truckload to small package. The only problem with moving a small package environment would be looking at hazmat. We also would look at truckload to less than truckload, and the reason we would move in that direction instead re is now with new regulations on hours of service, they are not as attractive as they are to building a truckload. When you add the stopover charges that have increased dramatically, along with free time for loading and unloading, one or more stopovers could -- stop offs could cost you more than the single truckload that was shipped by by itself. Just to give you an idea of what our transportation flow looks like or our distribution flow looks like, we break it up into two separate segments, one for the packaged products which is actually finished goods that are contained in a package, and basically they can move in three separate directions. It can move from production to a public warehouse and then to a distributor, or move from production to the public warehouse to an intermediate warehouse and finally to the customer, or it can move straight from production to the distributor, which would, of course, be the most cost efficient method to move that particular product. And in this distribution flow, all the modes of transportation could be utilized. This is the actual distribution flow for the bulk product, and as you can see here, this is where we are going to incorporate the rail into the distribution of the product flow here. Just a little bit about the trends that we are seeing. We are seeing that there's going to be streamlining in the shipping and receiving operations. We are also seeing that we have had to extend gate hours and the pickup and delivery appointments have been reestablished at the different public warehouses and plants due to the hours of service legislation that's come into effect. We are also reducing the number of stop offs trying to coordinate continuous moves, which is a bit difficult since our transportation function is not centralized, so it takes a little bit more coordination to actually make this happen without being in a centralized environment. We are also taking a look at the public warehouse network. With that, we would show a balance of cost versus distribution requirements that we have from our marketing group. We also would look at any -- adding warehouses to the plant site to reduce the transportation costs and the handling as well, also a trend toward looking at increasing plant utilization and reducing the number of tolling locations that we actually utilize. Our position is to try to have a one --touch environment, which would be better positioning of our inventory across the supply chain. A little bit about our industry peaks, if you will -- our distribution peaks, if you will, our product has seasonality with it. We of course work directly with the farmer, so the planting season is our big season, and, of course, our business volumes are in direct relationship to the weather. Planting season has a lot to do with ground temperatures, how wet everything is, what the forecast is going to be the next few days, so we have to work very closely with what the weather forecast has for the different regions of the country. We are also looking at better forecasting tools. For us, it's difficult for us to forecast what the forecast -- to forecast what the weather will be so we have to rely on other groups to indicate to us when they think the time is right for the planting to take place. We also have tried to produce our inventory closer to the market need, and our business is a little unique in that because of our seasonality, the first quarter we do a loft our production, which is good from a carrier base, because the first quarter is generally slow. So we can supplement with the first quarter because we had a lot of production. Second quarter is when our planting season takes place so we are in full tilt at that time. Third quarter we slow down somewhat, but the back to school season picks up and the Halloween season picks up. Fourth quarter we have Thanksgiving and the Christmas rush is on so we fill the gaps with the carriers when we don't have other industries that are moving quickly. So we also are taking a look at the outsourcing options that are available, not that that is a direction that we want to go. We want to be sure that we understand what options are available to us, as well as investigating optimization software solutions that we could potentially bring in house and develop ourselves to enhance our operations. Then there are also security issues we have to take a look at as well. Some of the challenges that we have seen for 2004 would be what the impact is going to be on the new emissions requirement, and it's still an open issue for the carriers at this point because the maintenance cost track record is the unknown at this point. Therefore, they have delayed a lot of their equipment purchases because they have heard projections that there's going to be poorer fuel economy with the purchase of this new equipment. Also, the background screen could become an issue, as far as what it's going to do to the driver pool, could reduce the driver pool or it could also reduce the he will of the driver that could potentially sign up to be part of that driver pool. Additional challenges -- eligibility of the driver that could sign up for that driver pool. Additional challenges for 2004 will be the impact of the hours of service legislation. There is definitely going to he about -- be a cost increase and again we touched on the driver shortages that could potentially happen and also the equipment shortage. It's projected that there's probably going to be more equipment required to accommodate the hours of service legislation. And there's also going to be some increase in the transit times. There's going to be congestion in the plant areas, as well as the highways, in the major metropolitan areas. We have already seen a reduction of the free time for loading and unloading, and also seen the stricter enforcement of those loading and unloading times. Additional challenges would be the increase in surcharges. Fuels have been for some years now, there are also some carriers looking for a security surcharge to help them cover the cost to take care of property security measures they need to have place. A lot of insurance carriers have come in with insurance surcharges to cover their threat of increase to insurance charges, and as of 2004, some carriers have come in and asked for labor and health care surcharges to cover their needs as well. In summary, basically, I think there's going to be two-pieces that we are going to have to look closely at, and one is going to be the cost creep, we will see that in pricing increases, surcharges, reduction of freight time, which is going to hit us with detention phase, and we are also to see a capacity clutch. It's probably going to take us more phone calls to carriers before we can obtain equipment for our particular movement, and also the length of haul may become an issue, because in the past, a link -- longer link of -- length of haul was more attractive to carriers, but now with the drivers hours of service, some carriers have indicated that a 750-mile length of haul might not be as attractive as a 500-mile length because you would have to waste an entire today. So we will have to see how that pans out. Also there could be a reduction in the number of carriers that choose to haul HAZMATS and those that continue to haul HAZMATS may come in for a fuel increase or a fuel surcharge to haul HAZMATS. And basically, I think, the customer's freight characteristics are going to have the single greatest impact on the carrier community and any freight delays that will hinder the overall productivity of the driver. So the carriers are going to take a good hard look at who the shippers are, and if those are the shippers that they want to do business with, and are those shippers conscious of the limitations that they have as far as drivers' hours of service. So I think it's going to be a challenging year for 2004, and there are a lot of issues that we can see coming up on the horizon that we will have to adjust our distribution processes accordingly. That's all for me, Jennifer.

J. Seplow:

Thank you, Linda. Thank you to those who did post questions to the chat screen. We will get to those questions afterwards. We are now going to go into Chris Campbell. Chris Campbell is from Philips Consumer Electronics. Chris, you are now the presenter so please feel free to go ahead when ready.

Chris Campbell:

Thank you, Philips, as you mentioned is a division of Royal Philips Electronics in the Netherlands. To give you an idea, profitability challenges are constant due to price erosion, where the end consumer is looking for a better deal, especially if technology improves and you see the actual price of product begin to fall. We have operating costs and those challenges that come in and out of each year each day, customer requirements, what distributors require when they send us a purchase order, as well as end customers that may have purchased something through an internet provider or be a direct provider from electronics. The CE industry is a little different than other industries in that the boxes are not almost always a standard size. Various sizes of boxes from small, to medium and very large boxes. The whole industry is very competitive, and it continues to grow in competition. You can see I have listed some major competitors about five-years ago that were very large or dominant in the marketplace. As you can see today, we have actually grown that marketplace to include Samsung, APEX, Audiovox and even Sanyo. In 2004, the competition will continue to as Dell, Gateway and Virgin continues to launch new products in the CE sector. These are direct competition from portable CD players to a digital camera that sits on a key ring, to a microshelf system that can sit on a shelf in your office. The industry itself has been actually evolving. Actual forecast and shipping cycles have migrated from a monthly cycle to a weekly cycle. Meaning that our customers are constantly giving us our forecasting requirements on a weekly basis and expecting us or requiring us to actually commit back to them based on their forecasts, how much product we can supply them. In turn, their order, their orders will follow in a weekly pattern against that forecast, and our commitment to them is to continue to ship to them to deliver to their facilities in a weekly fashion. So this increased cycle time has put enormous pressure on the electronics industry to not only increase their shipments but find out how we can consolidate all these multiple orders together to to create actual fewer trucks moving on the road. But the customer demands are really a key component of everything we do. In addition to what goes on inside the industry, an additional customer requirement that is out there, is radio frequency identity, or RFID. RFID is a hot topic across a lot of vendors, especially because of Wal-Mart, one of the largest retailers in the world, has decided that this will be their new method, not only security tracking but also product traffic. RFID is the next step, if you ever walk through the retailer that has the little scanners as you walk out the door, that beeps if they don't deactivate the strip inside. The RFID is actually an enhanced version of that. What it does it allows the retailer to automatically store the serial number of that product, time and date, where it was purchased, not just the store, but actual city, state, regional locations. As that product moves through the store, and if it should ever return, in exchange or the product wasn't defective when you got it home, when they scan that, they should automatically be able to tell, how long it was out, the reason for that term, once it is brought back and everything is automatically linked to that serial number. That information can then be passed back to the manufacturer for use in their own quality tests, their own product tracking, to see who registered users are. Typically when you purchase a product, you have a little card to fill out, you have to mail that in, call a phone number or log onto the Internet. The radio frequency identity, one advantage that is coming out in the next few years, once you purchase that product, your serial number is already registered with the manufacturer. It is just attaching your name and -- information to that purchase. So it is the next step in product registration. But it has a great amount of potential and some really great neat technology associated with it. The costs are going to be interesting and that's why a lot of vendors are struggling to meet Wal-Mart's requirements by the end of 2005. In addition you have additional vendor requirements such as vendor compliance. A lot of retailers require that we deliver to them in a certain frame. If we are late, or if they don't have -- say they ordered 100 units and we only delivered 90 because 10 were damaged in transit then we get a scorecard that is based on our performance. That performance has a lot of key factors in it from forecasting to order availability, fill rate, are you giving us the units that we order, and the delivery time. Are you delivering it within the window that we are providing. If you don't meet those key areas, a lot of our customers actually provide a compliance charge. They actually give us, they actually charge us back for failing to meet their requirement. So in the largest retailers out there usually do have a compliance set around the actual delivery window. When they give us an order, they want the order to arrive at a certain time. If we miss that time in that appointment window, and we actually do get a charge back from that customer, those charges can amount to millions of dollars over a year, a year period. So attention to the product placement, delivery process, the carrier performance, is very critical. And this is going to become a very key topic as we move into discussion about hours of service later on. A little bit of overview of Philips. Electronics, we have different product variation, it is a little different than having four or five washer or dryer selections. Our products are different in sizes. We have a digital camera that is the length of a disposable razor that can attach to a key ring. The customer wants all these product variations. The actual customer mix is very small as well. We have small retail outlet, a furniture store based in your local area, medium size customers to national large companies are very familiar to everyone. We have three outbound distribution points, Greeneville, Tennessee, Roanoke, Texas and Riverside California is in the LA basin, and one of the things that CE is doing is one of our improvements is actually relocating the Greeneville, Tennessee distribution center to another location on the east coast. Philips actually started there when they opened their first manufacturing plant in Tennessee. The idea back then was to build your manufacturing plant and your warehousing plant all in one area. In '96 we sold that manufacturing plant and we have been just been using the warehouse base for now. Later in the year we will be locating to a different area of the country. The products that we actually produce are brought in from Europe, Asia and Mexico which leads into a good point of our shipment. Our port of entry for Asia is Los Angeles. If it's a product that will be stored and shipped out of the Riverside warehouse into that region will just be trucked over from the port into the warehouse. If it's going to be stored in Greeneville Tennessee and shipped to service the east coast customers, then that product is generally placed on a train, and it is sent across, call it a mini land bridge, and it is railed over to the warehouse. If it is coming in from Europe, it generally ports either in Charleston, South Carolina or Savannah, it is trucked to the warehouse. We actually have production plant in Juarez and a logistics provider, shipment planning, carrier management, carrier rates, and our distribution. That third party distance provider actually assists us with border management, as we bring not only our replenishment products into the warehouses but actually anything we are building in the factory and shipping directly to the customer's door. Those third party logistics providers have actually been a key figure in actually making sure that Philips itself is set to meet all the homeland security requirements so we can utilize all the requirements down at the cross border. Such as the FAST lane. That is a good example of that. 2002, actually in 2001, we started a massive project to restructure our entire supply chain, as mentioned in weekly forecasting as we mentioned earlier our customers moved 20-week forecasting requirement. In third part of 2002 we brought in someone to help us with our transportation activities. The current modes of transportation that we use are air, which is common next day and second day, three-day, provided by your most familiar provider, such as UPS and FedEx. We have partial ground, air and ground, UPS and FedEx. Another facet of ground is heavy weight air carriers, 150 pounds plus. They also have a ground transit in addition to their next day, second-day providing. Ground is about a five-day transit. Less than truckload, or LTL, truckload and rail. One of the key things we are trying to do is actually transition from LTL. LTL and the ground, 150-pound plus shipments, ground to air that i mentioned before. Typically what that is, I have a customer with one unit, 27 inch TV. Rather than paying an LTL carrier minimum charge because it doesn't meet their weight requirement, moving it through that air-ground network, at a much cheaper rate, still getting the service that I need to get it to the customer, but at the same time trying to reduce the cost. Then we are also looking at ways to try to pick, if we have an expedited one or two-day service, and it's not that far away, trying to use the less than truckload carriers network to expedite their service through traditional service such as FedEx or UPS. Okay. Some of our challenges in 2004, are hours of service. One of the key things that has come back from our carrier community, is that with the driver hours available being recalculated, any hours they are not in the sleeper berth count them as being on duty is having them reevaluate hours of charges of duties that they do. One of the areas that has come back is more than typical stop offs, and more than one customer on a carrier. . In addition to that the carrier is also looking for increased charges for detention, it takes longer than x amount of time to unload the product, then by unloading that product, and if it goes to a certain point, then they want to increase that detention charge. Also, the equipment demand, which is in the past has always been pretty moderate to heavy, is now going to switch to a severe status because the carriers don't typically want to take on more than two stops and don't want to go to particular customers that may take an extensive amount of time to unload the product. So competition for equipment is going to be quite interesting in 2004. Driver retention and expansion. The carriers have also come back and identified that with the new hours of service being basically cutting the available time the drivers have actually to handle the freight and move the freight around, is actually going to require them to increase their driver pool, which has already been strained. In addition to that, for the drivers to increase, they are going to have to have equipment increase. None of the carriers that we have spoken to have already indicated that they don't have any plans to do either at this point. Some of the shippers in the industry have already started to see that this, these will actually start to force more equipment on the road versus the less, as you start to switch your multiple stop cycle is dwindling so you are actually sending a truckload light, so you are not sending two out versus one or you are shifting that freight to LTL provider. The capacity battle that every shipper endures throughout the year, we are seeing it change from a battle at Tennessee to turn a capacity war. That's going to be a very, very key thing to partner with carriers and customers to see how we can accommodate the changes. Again, -- LTL shipments, we are already seeing an increase as well as cost of operations because LTL are more expensive than truckload as well as the customers requirements that we still have to abide by, meeting that delivery window. So I may loose the opportunity to try to consolidate two LTL shipments into one truckload simply because I can't require stop off or time in transit or link to home may be too far. To give you an idea of truckload, in 2001, of all the truckloads that Philips CE shipped out 10% were multi stop shipment which means we made more than one stop to a customer. In 2003, this goes back to our order cycle changing or forecasting weekly cycle, 42 to 60% of our shipments were multiple stop. So the impact of multiple stop detention charges is going to be huge for us and it is actually going to cause us to start looking at other alternatives. One of the other key modes that we had talked about was rail, earlier. Rail was -- has not been a very friendly mode of transport for the electronics industry, primarily because of the customer requirements requiring it to be there within a certain time. Typically our customers give us an order at -- a week, at the best, two-weeks out. When you have the product coming in at such a tight lead time, it to the rail service, the rail service times, while they have improved over several years, there still continues to be congestion in certain cities which actually ends up penalize you in the long run versus using a truckload carrier. So the other improvements, this is one of my catch phrases that's been gaining steam around our office, you have to be an attractive fish in a big fish pond. A lot of our carriers and most of the contacts that I have will constantly point out to us, you know, that, well, you are not our biggest fish in our pond so I am looking at trying to be an attractive fish so you don't notice that fish which will go to a key part of working with carriers to find out how we can better utilize their equipment. Their trailers are sitting there and I am not doing anything to benefit them. Looking at how we can be better -- better utilization not only on that part but also on their profit , making sure that what I am getting from the carrier as far as service meets my needs at the same time, we are both being profitable in those lines and automating our truckload tender profit. This is where we have a load ready for a truckload carrier to pick up. Right now, sometimes we call or sometimes we may use a fax. We are we are looking at actually trying to automate that process through an electronic data interchange where we actually send via the phone line to the carrier, the requirements that we have, the customer, where it is moving to, the time and where it needs to be picked up and delivered. I want them to respond to that in automated fashion rather than trying to tie a single person to move that process, automatic, from a manual standpoint. Rail congestion, as I mentioned. The utilization can be increased if the transit time improves. We have seen some very good, some lane rates especially going from the east coast to the west, with some certain carriers, where it is only a four-day transit, including the ramp to the rail to the customer. That service is very good, but, again, certain areas, like into Chicago, some areas in the northeast, the actual time in transit is actually longer. And, unfortunately, we are not able to try to utilize that as much due to those customer requirements, meaning that specific, that specific delivery window. Factory direct, we have two different programs. They have customers in the far east, actually utilize our freight, like Hong Kong, locations in Asia, using that, we are actually able to take it to the factory, freight forwarder and the customer takes possession there in the far east. That includes any movement throughout our warehouses in the U.S. and handling freight. To give you an idea, in '99, we only had one customer doing this program, and they only had seven shipments that were done that way, and in 2003, that same customer, 70% of their business was done factory direct from the far east, so we were able to really dramatically reduce the amount of movements through our domestic warehouse. We have other customers that are starting to roll out on to that platform. It's been off and on for the past several years with several different customers, and with the experience we have gained, we are able to come back and offer tighter lead times, shorter lead times for the customer, which has been a very key point for them. They want to be able to make their last-minute adjustments to make sure that they are meeting their demands that customers are giving them. The other one that I mentioned before is Mexico direct. Products built in Mexico is sometimes put on trailer from factory door and delivered straight to the customer's facility, again, bypassing it through one of the industry distribution points. To give you an idea of our statistics, the first chart shows you the miles that we have moved. Again, these are actually in the thousands, so to give you an idea, California is 968,000 miles, just by air. You can see we did over 204 million miles across from the three different origins, across the different modes of transit. IM is intermodal , by the way, which is rail. Then you see our weight. We have roughly 712 million pounds, have actually moved, truckload, of course, being the heaviest. One thing to note about electronics product, the weight, while it may, we may have a lot of boxes and we may move a lot of those boxes, they weigh significantly less than a lot of freight that is moved via truck. To give you an idea our average weight is 15,000 pounds and a regular truck is around 43,000 pounds. So we are roughly half of that. -- that gives you an idea of the complexities that we have. Not only do our box sizes differ, so we don't really take up the whole, complete, portion of the truck, but we also don't have a very dense product. So you have a lot of boxes but not a lot of weight. And this is a breakout of the graphs of the slides that I just showed you, the different numbers, we are grounded. The parcel ground is probably our best mover from air, between air and ground. This is also mild. The LTL, out of Texas, has the most amount of miles, primarily for that distribution, the distribution center in Texas services the entire country, whereas California and Tennessee, basically broken up by the Mississippi River. So California and Tennessee share the same product mix, and they are a regionalized distribution, where Texas is more of all -- our total vision product services all points in the 48 contiguous states. Again, our weight, showing you the air and ground. Tennessee is another high volume mover for us because they service the east coast and again the weights on the truckload out of Texas. A lot of television, projection television versus smaller audio, DVD products out of Texas and California. The last slide I want to show you guys is a little bit congested but shows the point to how the electronics industry really struggles with utilizing a truck. This shows you our average cubic feet on a truck. If you were to take a 53 foot truck, pull off the top of it, turn on the faucet. You will see that about 3900 cubic feet is the size of a truck just in a liquid state. Our average is right around 2200, 2300 cubic feet for the year, and this is coming out of all our different facilities. The CLNT, first thing that you see, that's Clint Texas, or that is coming out of our Mexico plant to our -- direct to our customers, part of direct shipment that we do. Greeneville, Tennessee, Roanoke, Texas and RSD is Riverside. So you get an idea of the total volumes we are actually faced with. So we don't usually utilize the whole space within a trailer so it becomes very complex when you are trying to move a whole bunch of smaller order sizes, consolidate them from LTL or ground to help them reduce the amount of equipment ton road. However, we are seeing, even in January, which is typically a slow month for the electronics industry, we are seeing that we are constantly being faced with how can we mitigate some of the hours of service issues that we have. We have already seen an increase on our LTL shipments which has actually put a burden on the LTL providers to say they are actually going to have to start looking for other equipment to put in their portfolio. So that kind of wraps it up for the CE industry and Philips. I appreciate it very much.

J. Seplow:

Thank you, Chris. And, again, you to you, Linda. I really found these presentations interesting, judging by the chat questions going on here, it seems like it generated a lot of interest and a lot of discussion. Somewhere buried in the chat, I think we do have a few questions. So I will start off with those questions, and then we will open up the lines to ask questions over the phone. So we will start with question for Chris, since you just finished your presentation. How has the Alameda Corridor helped with your distribution system?

C. Campbell:

You have to help me out with the Alameda Corridor?

It parallels i-17.

You are talking about long beach?

I-710, I'm sorry.

The line that parallels, goes from the port out back east?

Yes.

Actually, from our inbound freight that we move across mini land bridge on to rail, that has never really been an issue, congestion, because it is one solid line. Our product inbound lead times actually account for, are actually very generous to help account for any congestion or delays that we might see at the port and or at the rail head. So we have some time built into that. That means that we just produce it a little early to accommodate any of those changes in transit and time. The challenge more so is out of our distribution centers, out. We have a large volume of rail traffic actually going from Texas west, and some, very little, again, in Greeneville, Tennessee, which is not near a lot of things, but while we are moving them out west. We move our east coast distribution center to other points in the east coast. We will actually see a greater volume of intermodal usage just getting to that point.

J. Seplow:

Thank you. I have another question. This is actually for both speakers. Linda, we will start off with you. What is the biggest barrier to moving more shipments to rail?

L. Neal:

I would have to say transit time and flexibility.

J. Seplow:

Chris, do you have any thoughts on that?

C. Campbell:

Ours is strictly related to where our warehouses are in relation to the rail heads, in addition to the requirements that the customers are giving us. Again, if they give us an order on Monday, they want it the following Wednesday, and certain lanes, that is not even enough time to put it on a train.

J. Seplow:

Okay. Thank you. Let's see here, there is a great deal of discussion going on. I'll just throw out one more thing based on the discussion and see if either of you have an opinion on this. There's some discussion about obstacles to movement and truck only lanes. Do either of you have an opinion on truck-only lanes that you would like to give?

C. Campbell:

It depends on the customer mix and the customer requirements. I mean, we are solely driven by what the end customers do. The more the customers buy, the more the customers order. The more freight that we actually can move and actually dedicate towards that. In the past two-years with the economy being in the state it's been, we have seen the volumes decrease. We have seen our mode of transit shift more from primarily truckloads to being -- actually being more to truckload and less than truckload. So truck only lanes, while we try to benefit that, a lot of our customers aren't in truck only lanes. You have a lot of truck distribution centers that are located in farout lying areas, such as take Georgia, for instance. Best buy has a distribution center in Dublin, Georgia, which is west of Savannah. That is the primary employer in Dublin, Georgia. Greenville, Tennessee is another good example. Back in the hey day that was a large take back area, lot of take back to warehouses, we were one of the very few manufacturers in the area. Now a lot of the manufacturing has moved down south across the border or overseas. We actually have fewer freight coming in -- into and out of that area. So we actually reduced some of the benefit that you might have of what in the advantage -- advantageous in the electronics industry to having a truck only lane, not necessarily.

J. Seplow:

Thank you. Linda, do you have any thoughts?

L. Neal:

No, not really.

J. Seplow:

I think what I will do at this point is I will open up lines to participants to ask questions rather than pulling things out from the discussion here. So, operator, I guess if we can open up the phone lines to questions, we will start with that.

Operator:

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by a 4 on your telephone much you will hear a three-tone prompt to acknowledge your request. Should you wish to withdraw your registration please press 1 followed by 3. If you are using a speakerphone please lift the hand set before entering your request. One moment, please, for the first question. And we have no questions from audio participants. Please continue.

J. Seplow

Do we have any questions in the room here? Chris, we have a question from the FHWA room. Can you categorize the rail congestion problems, and are any of those due to signal issues?

C. Campbell:

A lot of the feedback that we are getting back is from the carrier community itself, and the worst area to really move into right now is Chicago. It's long been a very congested area. Some recent articles have been published in the wall street journal where ups is actually partnering with a couple of rail lines to move ground shipment via rail and some new express lanes and some of the cities have actually become -- begun to partner with rail heads to reduce the those are some of the key things going on in the industry. Like I did mention, we do have one rail -- carrier that has partnered to provide some really good transit times, especially in the west coast. It goes back to how they have changed their entire operation. So a lot of the signal issues haven't been as great as been in the past. The rail carriers have all taken a good look at their operations and actually begun to transform themselves from the operation, as they were for many, many years. They are actually becoming more streamlined, a more flexible and a little quicker.

J. Seplow:

Thank you. Do we have any questions on the line yet?

Operator:

As a reminder, ladies and to register for a question, please press the 1 followed by the 4. One moment, please, for the first question. Please stand by. We do have a question. We are just getting the pertinent information. And our question comes from the line of Cheryl Bynum, U.S. Environmental Protection Agency. Please proceed with your question.

Cheryl Bynum:

Hi, I do have a question, do you guys think that shippers will relax. It seems to me there is more interest in tighter, just in time. Do you think in lieu of the new safety regs they may be able to relax that do you see this, the trend as continuing? It is really putting a squeeze I see on the vendors more than anywhere.

C. Campbell:

Well, the, from our industry, we were very happy not being just in time. However, as the retail environment has changed, become more aggressive, and we have progressed I want it faster and far, kind of the microwave society you hear it referred to, that has also translated back down to vendors across all industries. So our just in times have actually, the requirements from the retail customers has actually transformed our -- entire industry. Several years ago, the table was switched. The manufacturer could basically tell the customer, this is what you are going to do, and they would basically do it because they needed the product there to sell. Now, with the competition growing, and you have such fierce competition growing in the retail market especially, those retailers are actually providing requirements and guidelines surrounding when they want the product. So it is really the customer, the retail customer environment itself that is responding to the end customers desires and demands that actually is driving everything throughout the whole chain. So do I see just if time being relaxed because of security? No, in fact, all of our customers have come back said you have to find ways to work within that. That is why there is such a part of emphasis in our industry on supply chain improvement. What else can we take out of the chain to actually reduce that time that could be like a cross creek that Linda had mentioned prior. How do we shorten that to meet, again, that customers requirements? As you can see in the electronics industry, as I have mentioned, the choice of people you want to purchase from has grown, so it's a different world now. Even the largest electronics company in the world, which I don't want to say their name, they themselves are actually struggling because customers are finally saying this is what you need to do to me. Or I can go somewhere else now. So it is a very competitive environment.

J. Seplow:

Thank you, Chris. Linda, do you have any opinion on that?

L. Neal:

Yes. I think for the first time there has been some discussion that says, you know, do we really want to offer them next-day service on everything they order whenever they order it? And in the past, we have always been, you know, the order comes in, we will ship it out the same day order is received, and i think a lot of that has come from the supply chain side again trying to reduce the operational cost, and when you discuss with the marketing people, they quickly turn you back to the sorry -- other side and say, no, we still want to do same day shipment for delivery next day. So from an operational and cost efficient standard, I think we would like to look at trying to relax, you know, that just in time environment. But yet it is going to happen.

J. Seplow:

Thank you, Linda. Do we have more questions on the line?

Operator:

We have a question from the line of Tim Rochte from the California Department of Transportation. Please proceed with your question.

Tim Rochte:

Thank you. We in the Department of Transportation here in California have been looking for ways to integrate intelligent transportation system methods such as weigh and motion stations, changeable message signs, highway advisory, radio, so forth to help within creasing mobility. However, I am wondering from the perspective of our guest speakers this morning, how did they see ITS helping with the delivery and distribution of their products?

J. Seplow:

Chris, do you have any thoughts on that?

C. Campbell:

Actually, we actually look forward to that. Anything we can do to help increase the information that's out there to the drivers that are on the road to either find alternate routes, plan ahead, delays, changes, to increase their time that they are moving, versus waiting either at a station to weigh, weight out, supply chain. Again that supply chain is not just related to one particular company. It is actually from way at the very beginning when you are pulling all the parts together, it is actually the delivery to the customer. So anything that occurs in between, or in transit, forces outside of our control, to help reduce those -- that time, those are key wins that I see in our industry, actually for everybody.

J. Seplow:

Thank you. Linda?

L. Neal:

I agree.

J. Seplow:

Okay. Any more questions on the line?

Operator:

There are no further questions at this time. Please proceed with your presentation.

J. Seplow:

Okay. We do have a few more questions from here in the DOT headquarters building. What is the most important item on your wish list to improve productivity and where does government fit in with that? Linda, do you want to start off?

L. Neal:

Okay. What was the question again?

J. Seplow:

What's the most important item on your wish list to improve productivity and where does government fit in that?

L. Neal:

Okay. I think one of the issues that I am going to face this year is going to be with the security issues and the drivers hours of service, if have quite a bit of hazmat that we move from point to point. So far, I have gotten comments and results back in from some of my carriers saying those drivers that are hauling hazardous loads are being stopped so many times that what was a one --day point and -- can now be a 2.5 day point. So I guess my concern is on a Hazmat side. I agree that we need to have those security measures in place, but maybe, maybe there's some kind of procedure or something that could take place so those drivers could, could make a run in a shorter period of time. Maybe a certain number of procedural stops for Hazmat, maybe that could be tracked somehow.

J. Seplow:

Thank you, Linda. I could tell you we have a lot of people in the room taking notes on that right now. Chris, do you have an opinion on that?

C. Campbell:

Actually, the security side more -- for us is more related to air shipments, which is a completely different area. But the one challenge that we actually run into, and it's actually been a pretty big challenge so far in the first, three, four-weeks of January, has been hours of service. While we understand the goal behind it, and we are in favor of trying to find ways of trying to make the roads safer, what is interesting is that the end result looks like it is actually going to increase the number of pieces of equipment that are on the road. So, I mean, that's kind of a challenge that we have ourselves. So automatically, we are already looking at trying to figure out how can we adjust and absorb the freight cost increases that we are going to incur. We have been hearing from other sister companies that are already struggling, the electronics market does not have great, huge margins that we all can enjoy. It's a very razor thin market. So anywhere where you have a cost increase can greatly sway things in some areas. Some other companies in our industry that are actually struggling may actually be forced to do things differently. Not only differently in the aspect of how they do business but whether they need to do business at all. Additionally, I have already heard from carriers who are having issues with profitability, with the new requirements, trying to add new drivers and equipment to handle the lost time from driving some of those air -- carriers may no longer be around to move that freight. So the capacity and strain we have on the industry is not going to improve, it is only going to get worse. So how to mitigate that all together. That's why a lot of carriers are reaching out to find if there are ways, it is no longer a shipper/carrier relationship but it is a shipper/carrier/customer relationship.

J. Seplow:

Thank you much we have another question from DOT headquarters.

For both of you, I was interested, how much does transportation contribute to the final price of your products?

Linda, do you want to start?

L. Neal:

I am not sure I can provide that information for you.

J. Seplow:

Chris?

C. Campbell:

that's actually, from 2002 to 2003, it's, actually, I can tell you, in 2004 we are already looking at a 15% increase in our cost solely related to hours of service. So our total transportation cost as it is to like cost per sales, I think right now, is somewhere between 12 and 15%, which is rather huge.

J. Seplow

Thank you. We have another question from the DOT.

Yes, I am with the Office of International Programs. I would like to emphasize that same point that was raised, that is transportation costs related to business. Assuming it is a multi national corporation and you have managers participating in the decisions on investment and plans to relocate, how much does transportation cost affect the decision on locations, and as a follow-up question to Philips, are you planning on expanding production and distribution in the U.S. or in developing countries and if so, where?

C. Campbell:

Well, for the second part, there are no plans to bring production facilities into the U.S. Actually Philips was the last electronics manufacturer to be producing television sets in the United States prior to moving it to Mexico. And the primary reason behind that was the cost to produce the product was, is, came down strictly to a competition issue. Either we were in, one of our leading markets, color television, or we weren't if we didn't make a move on where we were producing it, in order to be competitive. As far as is transportation part of our decision of where we locate our facilities, it is huge. However, keep in mind, Greeneville, Tennessee, was actually built and housed back in the day when the business model for manufacturers was to have your warehousing facility in the same building as your manufacturing plant. Now, with our relocation of our east coast DC yes, we are greatly looking at transportation costs and the -- positioning of that DC will relate not only to the outbound rates and outbound flexibility of equipment, but also the inbound, does the -- how does the cost actually bring it from the port to the warehouse.

J. Seplow:

Thank you. Do we have any more questions on the line?

Operator:

As a reminder, ladies and gentlemen. To register for a question, please press the 1 followed by the 4.

J. Seplow:

Well, at this point --

Operator:

We do have questions from the telephone participants. One moment while we get the pertinent information.

okay.

And our question comes from the line of Jocelyn Jones, Baltimore Metropolitan Council. Please proceed with your question.

Jocelyn Jones:

Hi, this is for both speakers. Can you just talk about the outside groups that you also participate in or other members of your staff that talk about these same types of issues?

J. Seplow:

Linda, we can start with you.

L. Neal:

Okay. We have a transportation league that operates out of the North Carolina district, and our members of our team are party to that meeting. We also have the Council of Logistics Management roundtable meetings that take place in our district as well that we are participating in and then different seminars that come into town, whether they are Hazmat information series or other logistics relating to information. So, mostly, transportation leagues and roundtable discussions.

J. Seplow:

Thank you. Chris?

C. Campbell:

We also participate in the Council of Logistics Management, both regionally as well as in a lot of cases where the national meetings have been held. In addition to those, we also in the past have been partnering with local universities, when we were -- first corporate headquartered in Knoxville, Tennessee. We were partner with the University of Tennessee as not only their business courses, also they would bring other business leaders and government officials together to participate in those discussions, and we have been partnering with Georgia Tech, Georgia Institute of Technology here in Atlanta, doing the same type of practice and activities. Outside of that, we are heavily involved with different other organizations in logistics and supply chain management. Our executive level, all the way down through to our entry level positions.

J. Seplow:

Thank you. Do we have any more questions on the phone?

Operator:

Yes. Our next question comes from the line of Stephen Polunsky, Texas Department of Transportation. Please proceed with your question.

Stephen Polunsky:

Thank you. You both have significant transportation options in Texas. If the state of Texas was to get more involved in rail, what actions would you suggest the state take that would assist you. And, secondly, when you listed barriers, you talk about transit time and flexibility. And if those are probably not things that the state could overwhelmingly address, so I am wondering, the question has two parts. The first would be to increase your ability to move freight on rail in Texas and the second would be to increase the movement of freight from trucks on to rail.

J. Seplow:

Linda, we will start with you first.

L. Neal:

Okay. Basically, if we chose to do that, we would have to take a look at our production cycle, if we move back that production cycle to accommodate the rail side. The second piece, most of our rail freight, is hazardous materials, so we would have to take a good hard look at that. The part that is not Hazmat, comes both basically back to less than a 500 mile area. So it is not going to beneficial for us to move from the rail side to Texas because the length of haul is not really going to be long enough.

J. Seplow:

Thank you. Chris?

C. Campbell:

Actually, our Texas warehouse is in Roanoke which is outside of Ft Worth in the alliance area, which is, I think it's about five miles there from the railroad in Ft. Worth. So our rail head usage, our usage out of Texas leaves all three of our distribution centers. So rail out of Texas hasn't really been a challenge, it's been more of a pleasant surprise. But again the issues we have with using more of rail goes back to our customer requirements and where those delivery requirements are. We expect to see more rail usage in our east coast operations once we get out of Greeneville. In Texas, the flexibility that we have, again, solely elates back to what the customer's purchase order requirements are. In a lot of cases we are not able to affect production schedules enough to increase our carrying time. One of the industry issues that we have is inventory carrying costs. We own the product from the time it is built to the time we get it. So if we actually increase time -- increase that time or produce it earlier we actually increase our inventory storage costs and have to increase our warehouse costs to actually to store it. So it's a question of how we can work on customers to improve their order cycle or have their orders come in on different days to mary up their orders that -- in a way that could be used in a rail environment.

J. Seplow:

Thank you.

Operator:

We have a question from the line of Carlos Gonzalez from FHWA. Please proceed with your question.

Carlos Gonzalez:

Yes, I have a question for either speaker, I wonder if any of you have worked with a freight advisory board and what were some of your challenges and successes, if you did.

J. Seplow:

Linda?

L. Neal:

Basically, I have not, but our person that is on staff on the regulatory side worked closely with the advisory boards.

J. Seplow:

Thank you. Chris?

C. Campbell:

We actually, because we are actually using a third party logistics provider for that whole entire transportation piece, that whole management group are the ones -- ones that actually coordinate with the regulatory advisory boards.

okay.

Operator:

Our next question is a follow-up question from Cheryl Bynum, U.S. Environmental Protection Agency. Please proceed with your question.

Cheryl Bynum:

Yes, I wonder in light of, this is for either of you or both, in light of these new regulations, if you see any trends. You mentioned maybe moving more things from LTL to TL maybe trying to use some did expedited rail. I wonder if maybe you see an increase in the use of other types of vehicles or any increase in other types of transit that you may see out of these new types of requirements?

J. Seplow:

Linda, we will go back to you on this?

L. Neal:

Okay. I have been reading about some longer combination vehicles. That would be of interest to us. Our product is dense, so we have no problem reaching the cubic capacity for a particular trailer, and it is all palletized, so it is good freight. We would certainly welcome an opportunity there. Also, there are some carriers out there that will also design bulk tanks that would allow us to put more product in there than the standard ones that we have right now. So we would certainly welcome any idea on that front. So, yes, we are open to any of those options that the carriers might come forward with.

J. Seplow:

And Chris?

C. Campbell:

In the CE industry, our products are not as dense as in Linda's industry, so, therefore, we are not able to be a very -- maximize or optimize the shipper in their eyes. Our freight is not that heavy, but we take up a lot of space. So, therefore, it's very limited and in the options that we have, we are seeing more of a shift and we are trying to reduce that from truckload to actually shifting to less than truckload with these regulations and trying to figure out how can we increase the order size within our customers to help mitigate that shift. Righted now, it's looking -- right now, it's looking, we are looking at how to use the other, the modes of transport that are out there, how do we blend those a bit more so it is complete -- -- segregation, this is less than truckload, this is truckload, this is rail or air. It is a blend of how do you find a solution to where the carriers are more flexible to try to move your freight in different ways.

Thank you.

Operator:

Ms. Seplow, there are no further questions from the telephone participants.

J. Seplow:

Okay. Let's see, Chris or Linda, do you have any final comments you wanted to make before we close?

L. Neal:

I just appreciate the opportunity.

J. Seplow

Thank you. We are glad you were able to present.

C. Campbell:

Thank you all very much.

J. Seplow:

Thank you as well.

I think at this point, we will go ahead and close the seminar. So, thank you everybody for attending the seventh seminar in the Talking Freight Seminar Series. As I mentioned this event was recorded and it will be available on the Talking Freight site in a few days. I will send an e-mail to everybody to let them know when it is available. In addition, I will send a copy of the chat discussion that was held throughout the seminar and a full transcript of the seminar. The next seminar, Tying Freight to Economic Development will be on February 18. If you haven't already, I encourage you to visit the Talking Freight website and to sign up for this one and future seminars. I also encourage you to join the Freight Planning LISTSERV, the address which is on the slide showing on the screen right now, if you have not already done so. Thank you, everybody, and enjoy the rest of your day.

Operator:

Ladies and gentlemen, that does conclude today's seminar. We thank you for your participation and ask that you please disconnect your line

Contact Information

Spencer Stevens
Office of Planning
spencer.stevens@dot.gov
Phone: 202-366-0149/717-221-4512
Carol Keenan
Office of Freight Management & Operations
carol.keenan@fhwa.dot.gov
Phone: 202-366-6993
Updated: 03/29/2011
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