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Talking Freight: Innovative Low Cost Freight Transportation Collaborations - Public and Private Partnership Opportunities

March 19, 2014

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Jennifer Symoun
Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is Innovative Low Cost Freight Transportation Collaborations - Public and Private Partnership Opportunities

Before I go any further, I do want to let those of you who are calling into the teleconference for the audio know that you need to mute your computer speakers or else you will be hearing your audio over the computer as well.

Today we'll a brief introduction given by Libby Ogard of Prime Focus, followed by two presentations given by Donna Koren and Dave Christianson of the Minnesota Department of Transportation and Sonney Jones of Dal-Tile.

Libby Ogard is President of Prime Focus LLC and has over 30 years of freight operations and logistics experience with Class 1 rail carriers and at Schneider National. She recently lead a Freight Rail Economic Development study in Minnesota and is the Chair of the Transportation Research Board AR040 subcommittee on State Rail Freight Planning.

Donna Koren is the Market Research Director for the Minnesota Department of Transportation, and the project manager for the "Manufacturers' Perspectives on Minnesota's Transportation System" project. Donna leads public opinion and market research efforts for MnDOT, bringing public input into department decision-making. Donna has an almost 20-year career in Minnesota state government, and a Master's degree in Public Management and Policy Analysis from the Humphrey School of Public Affairs.

Dave Christianson worked 25 years in the private sector as a transportation manager, including work in the oil industry, warehousing and trucking, and marine and rail intermodal, covering the Gulf Coast, Midwest, and West Coast. He also worked as a transportation consultant for a number of years. In 1999, he entered public service in transit management and freight planning, and has served as a rail and freight planner for MnDOT since 2008. He served as the project manager for the Minnesota State Rail Plan, and is currently involved in a number of special assignments.

Sonney Jones is a bilingual logistics professional with a background in the sales, operations, and engineering disciplines of the logistics industry. His operating background and experience spans much of the Americas, having worked for numerous carriers prior to his current logistics role as a shipper. A 2008 redesign of the Dal-Tile supply chain which incorporated the M-10 Marine Highway resulted in Mr. Jones being presented with the "Pioneer Award" at the 2011 Marine Highways Conference. More recent collaborative efforts within the US and Mexican freight community have driven significant improvements in cross border capacity utilization, particularly on rail modes, fueled by the density of Dal-tile's ceramic tile products. This process was awarded first place at the 2012 Global Supply Chain Innovation Competition co-sponsored by the Council of Supply Chain Management Professionals and SupplyChainBrain magazine. In January 2014, Mr. Jones and his collaborative partners were also presented with the Alliance Award for International Freight Solutions from the SMC3 and World Trade 100.

Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. If during the presentations you think of a question, you can type it into the chat area. Please make sure you send your question to "Everyone" and indicate which presenter your question is for. Presenters will be unable to answer your questions during their presentations, but I will start off the question and answer session with the questions typed into the chat box. If we run out of time and are unable to address all questions we will attempt to get written responses from the presenters to the unanswered questions.

The PowerPoint presentations used during the seminar are available for download from the file download box in the lower right corner of your screen. The presentations will also be available online within the next few weeks, along with a recording and a transcript. I will notify all attendees once these materials are posted online.

Talking Freight seminars are eligible for 1.5 certification maintenance credits for AICP members. In order to obtain credit for today's seminar, you must have logged in with your first and last name or if you are attending with a group of people you must type your first and last name into the chat box. I have included more detailed instructions in the file share box on how to obtain your credits after the seminar. Today's webinar is not yet available on the AICP web site but I will send out a notice once it is.

For those of you who are not AICP members but would like to receive PDH credits for this webinar, please note that FHWA does not formally offer PDFs, however, it may be possible to receive PDHs for your participation in Talking Freight if you are able to self-certify. To possibly receive PDHs, please download the agenda from the file download box and submit this agenda to your respective licensing agency.

Finally, I encourage everyone to please also download the evaluation form from the file share box and submit this form to me after you have filled it out.

We'll now go ahead and get started with a brief introduction from Libby Ogard of Prime Focus LLC.

Libby Ogard
Thank you so much, Jennifer. At some point in everyone's career, you will be challenged to do more with less, whether it is working with a smaller budget or finding ways to cover all loads in a capacity constrained environment. Or even possibly rethinking your current work processes due to a scarcity of resources. This has all happened before and it will all happen again. Collaboration is an important tool to help overcome these challenges. Today it is my pleasure to introduce two case studies which demonstrate the power of collaboration and that have produced innovative results. In the first case of Minnesota DOT, they undertook a bold low-cost qualitative outreach effort and sat down with business owners and logistics companies to better understand each other's businesses and objectives, as well as the work flows that were important to these businesses. This collaborative process resulted in better communication and resource allocation. In one case study, we will examine how manufacturer collaboration worked with other neighbors and the same manufacturing community to take full advantage of those weight and cubic capacity of railcars and containers which achieved some stunning financial results as well as some positive impacts, in terms of congestion and the environment. With that, I will turn it over to Minnesota DOT.

Jennifer Symoun
All right. Thank you, Libby. We will move onto our first presentation given by Donna Koren and Dave Christianson of the Minnesota Department of Transportation.

Donna Koren
Thank you, Jennifer and Libby for the introduction. Good afternoon to everyone on the call with us. Dave and I are very excited to present this model to you because it is really a very simple model; it was just amazingly effective in helping connect us MnDOT, to locally based manufacturers and carriers in a particular part of the state. We needed to connect authentically and hear about their business, needs and priorities for the transportation system, in order to be able to make changes to our systems so that we can better align what we are doing with what they need. This helps us all support the economic vitality of the area we were looking at, and the state as a whole. So our project has a few primary purposes, and a pretty well-defined scope. We didn't want to take on more than we could handle, and we certainly did not want to promise more then we could do. What we basically wanted to do was learn what we didn't know about manufacturers' transportation challenges and priorities. Since we, as a lot of other DOTs, have done a lot of freight studies, we had a lot of quantifiable information about the loads and the trips and all of that. However, what we did not know, and what we have been hearing through our district engineer and staff, were about some of the challenges that we don't necessarily hear about when we would send out consultants to do data collection. One of the anecdotes that got us thinking about the need to do this was that we heard that a manufacturer was taking a circuitous route because of the pavement conditions. The most direct route had rough pavement and others had smoother pavement. They were transporting high-tech equipment that was getting damaged by taking the most direct route. That was something that we would not know if we had not heard it anecdotally. So we thought, if there are a few anecdotes like that, there must be a whole lot more. So we wanted to collect this in an organized way, and the District engineer for this area, Jon Huseby, really got that going.

The second purpose was to build relationships with these regional manufacturers and carriers who serve the area, as well as economic development organizations. We wanted to do the data collection. We wanted to hear what the challenges were and what the priorities were. But we didn't want this to just stop with a point in time study. We actually wanted to develop ongoing relationships, or reinforce ones that already existed. We wanted these manufacturers in the area to be able to feel comfortable to call us when they had a problem, and we wanted to be able to contact them when we thought we would be doing work out on the roads that could affect their ability to move their goods. If the lines of communication are open and flowing, it is going to work better, in particular, for the manufacturers and the carriers, but for us as well. So we very deliberately did a lot of the project work ourselves so that we could build relationships for the long term. I will talk more about the role of the economic development staff in the region, too, because that was vital to the project success.

In terms of the information, we wanted to collect and identify the very concrete and actionable low-cost/high benefit improvements that we could deliver in one to four years. We didn't want to talk about adding extra lanes or about lots of new investments because we don't have a lot of resources to make new investments. What we're looking at are ways that we can maybe reset priorities and reconfigure some of what we are doing and enhance some of our services that are not necessarily infrastructure related, but have more to do with maintenance and operations. We wanted to be able to say that we could deliver on this within the next few years. So we have the 20 year plan and the 50 year plan. We wanted to be able to make improvements that the manufacturers and carriers would be able to experience in roughly the near-term.

So for our project budget, because we intentionally did a lot of the work ourselves, and relied on local economic development professionals who are volunteering their time to participate in the project, we only ended up spending $105,000; which in terms of construction projects is obviously minimal. But for a year-long project, we were going out into the district and covering the entire area, doing interviews with the University of Minnesota research team. We thought it was a really good deal because we came back with hundreds of discrete pieces of data and pieces of feedback which were either about locations on roads or specific actionable things we could work on. We actually expanded the project scope. We started out with a smaller scope. We thought maybe we could get 40 interviews or so, and then when we sent out the invitation to manufacturers to interview, the response was so positive. In order to accommodate all the requests for interview at that point, we expanded both the budget and the timeline to the $105, 000 and pretty much year-long.

So this is District 8 and it is comprised of 12 counties. They are actually are about 10% of Minnesota's land area. Interestingly, there are no interstates there but there are interstates around it. So these carriers need to get goods out of the district, and are using that infrastructure to connect to the interstates, to get to either the Twin Cities or to get to bordering states. The district gets a lot of snow, and they were particularly hard-hit this year. It is a lot of flat area and a lot of farm area. And because of the snow they struggle, and anybody who needs to travel in the district struggles. That is just an ongoing challenge during the season.

The district has seven cities with populations over 5000, so it is a lot of smaller communities. The District Engineer was thinking that where there is a manufacturer in some of these small communities, it is vitally important that we are doing everything we can as an agency to support them being able to get their inputs on time, and get their products out on time and within budget. With that said, we found -- the University of Minnesota found -- that we have a wealth of manufacturing going on in the District, and it is diverse, and some of it is large. We were surprised, we had heard a lot of things, but we didn't know the breadth of the manufacturing. When the University staff did the analysis, we found that it is amazing what is going on there, so all the more need for this kind of a project. We have manufacturers making high-tech equipment, medical equipment, making huge cranes, or huge scoreboards, and everything from there down to large-scale food processing. It is extremely diverse. There is a lot more information about this whole process and the industry cluster analysis in our report, which can be available to anybody who wants.

Then we would take recommendations from the local economic development organizations, who we included. So basically we are looking for manufacturers who had a competitive advantage in the area. We wanted to make sure they were covered. What we understood about this process of identification was that we have a lot of manufacturers in this area of the state who are shipping internationally. Twenty-nine of our manufacturers, as you can see, are really shipping their products around the world, which is a little bit stunning. Again, all the more reason to make sure that transportation is facilitating that connection to the world and bringing those resources from their customers back into the region, and back into Minnesota. We have the demographics of these companies also laid out in the report as well. Again, we went for diversity as we really want to understand who was in the district.

I referred to the going out and doing the work ourselves. A number of times we intentionally wanted to have MnDOT staff go out and meet with the manufacturers in the interest of having ongoing relationships with them. So we teamed our staff both from the District and Central Office, with the University of Minnesota's State and Local Policy Program staff who were administrating the project for us. The University of Minnesota Extension Center was key in bringing in the local economic development organizations into the project. Like I said, the local EDAs volunteered time to work with us. We would form teams of two or three people and we would send them out to do these face-to-face about hour-long qualitative interviews. Often, when MnDOT does these kinds of projects to get information or input from customers, we hire consultants and say, can you collect this information for us and tell us what you find? But there is also that filter there, and we really wanted to meet with these folks face to face ourselves. We think that it really made a lot of difference in terms of understanding, at an immediate level, what it is they are encountering, from some of the stories we heard from them. Dave will give you some examples of that later on in his presentation.

We also involved people throughout the project. We wanted to include the larger District staff and more staff from the central office, in working with the findings, so that they knew what we were hearing and we could start the initial planning. And just so that it would not be a surprise at the end of that. It is still a lot of work and a lot of analysis to do, and folding it into the existing plans; and we didn't want to take anyone by surprise. We wanted to involve many levels within MnDOT, to start working with this data, sooner rather than later.

We met with the EDAs at the onset of the project and then provided a training session to them on how we wanted to conduct the interviews. Many of them were used to doing similar types of work, going out and meeting with manufacturers and hearing what their needs are. We had a structured interview and we wanted to meet them and get familiar with them and have them feel comfortable with us, and then go through the scripts and address any questions. So that was just a good opportunity to get our organizations together at the onset. We also met with the region's city and county engineers. The District staff have been having regular meetings with them all along in general as part of their work. We wanted to give them a heads up on what we were hearing as well, and then also get their reactions and do some initial brainstorming or discussion of what we might do, to work together more effectively. So we are facilitating transportation across our jurisdictions and not creating any barriers that can be avoided for the manufacturers and carriers.

So the qualitative interviews themselves. We went really with a bunch of open-ended questions. We wanted to get specifics about infrastructure needs and things like shoulders and passing lanes and the quality of pavement. Those sorts of infrastructure improvements we could make at that scope level, and then maintenance and operations. Communication was a great area too, that turned out to be one of our most important themes, which I will get into shortly. The interview had quite a few suggestions or improvements that they thought we could do. They didn't mean that we were doing a bad job to start with, but for example, when I talk about 511, they had some improvements that maybe we had not thought of. Policy issues, that did not turn out to be a huge category. But really, we just asked a lot of open-ended questions to try to understand their business and to hear what it was they needed from us, from the system, and to talk about how maybe we could better address their needs.

Our report really provides a lot more detail on what we collected. As I said, many discrete pieces of information came from the interviews. So we have the state highway map, and we pulled those out at almost all of the interviews. We asked the manufacturers or carriers mark them with post- its and markers. We just made points on different roadways that were problematic for them and why, so we have actual locations we can take a look at and do further analysis on. We had specific issues by manufacturer, as you can see from this picture- this is a carrier photo. We have this oversized load, and if I am getting boxed in by a roundabout, that is going to be a problem. One of the anecdotes that kicked the project off is smooth pavement. We have heard that from quite a number of manufacturers, that smooth pavement is essential for transporting the fragile high-tech equipment. So that was a new finding for us that was very important to a number of folks being interviewed. Some input and products are very time-sensitive for a number of reasons. We have a dairy that is shipping milk every three hours around the clock. If the milk truck is getting boxed in and because of detours or roads being shut down because of snow conditions, they have to have alternative routes, or they literally have spilled milk. Or a manufacturer needs to get their products to MSP, the international airport, to get those products out, or they are delayed 24 hours. Another interesting finding was that shoulders are valued for safety so that drivers have a place to pull off. They don't have to be paved, but they need to be wide; that's very important to them. That was interesting finding as well. As I mentioned, the roundabouts were an issue for some. Then MnDOT staff had some creative problem-solving around that one. We will get together with a larger MnDOT staff for suggestions for problem-solving. Not that we can implement those yet, but talking about how we can address those issues for shippers.

For safety and roadway technology, the signage is very important. It is at low-cost relative to delivering the overall transportation system. It is a low-cost way to get more information out to drivers in order to save them either from getting lost or just taking routes that they don't need to. They said that they really appreciated the flashing lights ahead of stop lights, as we have these long stretches of highway that are flat. When on those, they know they will have to stop because they are approaching a town, and that is helpful to them from a safety perspective. The University staff pulled this sign indicating low bridge clearance as it was it requested by a number of interviewees. I think one of them suggested using a laser. So if the truck goes there and trips the laser, then they will get a warning. Even something as simple as this will be helpful. And it is just a funny sign. But it would never get through the sign committee. For the additional rumble strips it is a low-cost, relatively speaking solution, which we would not have known about otherwise. Snow and ice removal, even given the challenges that this region faces, is generally working well. Here is where we can sort of change the priorities in some areas. If there are time-sensitive shipments that need to go out, make sure that those routes are cleared at certain times, as possible. I mentioned 511 earlier; this is used to a degree that we just had not anticipated. Some of our project team interviewers went into dispatcher offices and they would have nine monitors up with 511, on all the different screens, so it looked like our traffic management center in a micro sense. They use it heavily and to such a degree, that they recommend improvements. They suggested that they be able to have their drivers feed live updates on road conditions to the system, so we are not just depending on our state patrol and MnDOT staff, but so that we have all of these professional drivers out on the roadways uploading to the system and making it more robust. It is an idea we're definitely taking a look at. There were other suggestions as well, overall, just greater coordination among the different jurisdictions so that they are not running into a detour from counties to states, as they go through the construction projects. So they are not running into that, to the extent that it is possible. There are so many factors that go into how construction projects get scheduled.

Whichever interviews the district engineer went out on, he ended up doing some problem solving, which was kind of neat. Of course he could not do all 75, and we were able to follow-up on some items that came from other staff as well. Some of the things that we did early were to provide assistance. And then he went out later with the District's senior planning staff where manufacturers needed alternative routes because they were either periodically getting shut down for snow and ice, or for construction. They needed viable alternative routes because they had time-sensitive shipments. He and his staff and the district wanted to go work with that manufacturer and do some problem-solving around that. That demonstrated kind of almost immediately that we were being responsive and that we could do this kind of problem-solving with them.

We also were able to solve an issue that led to a manufacturer of oversized homes being able to do an expansion of their facility, over $1 million. They could now build these larger homes because there would be a way to ship them to other states, whereas, they had not been able to do that before. We are currently incorporating all of this discrete pieces of feedback into our district and our central office planning. It is a lot of information, but a lot of really good information, and we need to crosswalk it with existing plans and see where we already have things programmed. I think because of the success that we had, and because it was relatively low cost, and the staff time involved was intentional, and we wanted to make those connections, we are planning to implement this model more widely. There are other districts within Minnesota. We think we can make it less than a year. There are ways to be more efficient with the process. This really was a surefire project in many ways and we're looking forward to taking it statewide. And one of our carriers suggested that it should go national. I will turn this over to Dave now to tell you about some of the stories that we heard. If anyone has any questions later about the project, please feel free to put those up.

Dave Christianson
Thank you, Donna. I will just talk about four anecdotal stories that we have from interviews that were very educational and ended up in corrective action. The first interview was with Pipestone Veterinary supply. We thought and looking at this, what was a veterinary supply business doing in the manufacturer list? But the Pipestone analysis was approved in the arena very successfully. Pipestone covers a list of clients and South Dakota, southern and central Minnesota, and northern Iowa. They particularly specialize in swine production, supporting hog farms, which is one of the biggest and fastest growing industries in Southwestern Minnesota. We have 18 veterinarians on staff and over 100 full-time employees providing transportation management and supplies and medical assistance. One of the things we learned from them is that as they are transporting with the large fleet of trucks, most of them being livestock trucks, from farm to farm, because the swine production team goes from farms were the pigs are born and raised for a few weeks, to feeder farms where they are raised to full size, and then to the finishing farms where they are getting ready for market. All of this happens within a seven-month period. They move these pigs over the road; they might have as many as 1000 piglets in a single livestock truck. The rough roadways they hit, even a few potholes can injure the pigs and make them fall or shove them to one side of the truck or suffocate them. They also told us about the detour delays. If they had a detour and has to stop the truck, the airflow through the van stops, and pigs who have no way to perspire and will suffocate from the heat. We got to the point, during the discussion, a very morbid rural humor. The veterinary people and the truckers were talking about Wilbur, the famous movie, they said, if you don't help us out, we will have to have dead Wilburs as far as the eyes can see. The other thing we found out was about the FDA; every farm out there that has livestock on it and has to have at least half mile quarantine around it. We were not aware of this. When we planned detours in construction zones, if we cut off a non- quarantine routes for pig truckers, we were essentially cutting them out of their business. That had happened several times in the past few years. We did not have the line of communication set up. These are one of the first things we could improve on.

The next was with a family business that helps several manufacturers for farm equipment. What you see is one of the prime products. They originally started with a welding crew and manufactures over 100 people in this small town of less than 1000 people and they ship all over the world. The manufacturing complex has an inlet and an outlet that was on a county road that ran into state highway seven. As the county ran out of money a few years ago, they downgraded the weight limits on that road and cut off one or two entrances. The one entrance on the state rode with a single lane gravel driveway over a deep ditch. The simple request, after we interviewed, was to give us a permit to widen the driveway. This is very simple. We had never talked about this before and it was an easy fix.

The next was with Friendship Homes. Donna mentioned the home manufacturers building manufactured homes, particularly for North Dakota. The competition is moving to a 14-foot wide home, instead of the traditional 12-foot wide home. Friendship homes only had Minnesota permits to move units on these rural roads. They had made applications for a wider load permit, but were afraid of pushing MnDOT because of the perception of state government and your bureaucrats and everything else, that it would be canceled and not authorize. They were holding on a plant expansion of well over $1 million and hiring well over two dozen more people to be manufactured homes until they heard about the permit. This is one the District Engineer went out on before he was even off-site; he made a phone call to the permit people in St. Paul. They started processing within a week. The company had a letter confirming the permit and testifying to the fact that this was a permanent fix and they went ahead with the million dollars investment, literally within the last year. This was a very successful interaction.

Next were the First District Association which does milk and food products and industrial sized dairies, as well as farming food product manufacturing, corn and soybeans. They produce enough milk to generate four semi-truck loads of milk each day, 365 days a year. When bad weather hits, they run into a problem. As Donna said, if the milk did not get through, there is no way to move the milk. The tanks are limited on the farm because of the high volumes. And it was the end of the production. They literally lost money. We talked to our expertise from the local operations people on the highways where they knew where the heavy traffic was and the way the weather, such as the prevailing winds, worked on the roads. In order to help them reroute the milk trucks, a 5-mile longer route generally could be kept clear during the blizzard conditions throughout the winter. This could effectively solve the problem and provide very much economic benefit. We talked about heavy equipment and the city of Hutchinson was one of the first places that put in roundabouts around the city. When we heard from heavy equipment manufacturers in Hutchinson, they said five things: There are five roads coming into the city, and you have roundabouts on four of them already. We will move out of the state to a place where we can get transportation and we are resetting all the roundabouts to allow for oversized roads in the area and across the state. We put them in contact with people who can really expedite the shipments. They want smoother roads, and smooth pavement. A good condition road will allow people to travel faster, no matter who you are- a professional truck driver or automobile driver.

ATS is one of the commercial carriers that hauls about three quarters of the oversized and overweight shipments. They again said give us a good route. We even trained drivers for better roads so they know how to handle bad conditions, but we would rather have less bad roads and training conditions. You can see we had everybody involved in the project team, and a special thanks to the economic development people as well as the county extension people. It was important that we did a qualitative in formal very much operationally oriented interview with these people to find out what the specific low-cost immediate needs were. And we were extremely successful. We are carrying on with the corrections throughout this year that need to be made and we're following up with other areas of the state, so it was very low cost. For the most part, very low cost solutions we came up with. That is what we have for you. Thank you very much.

Jennifer Symoun
All right. Thank you Donna and Dave. I do want to encourage people to type questions into the chat box. We're now going to move onto the second presentation, given by Sonney Jones. I will bring up your presentation and you can go ahead.

Sonney Jones
Thank you, Jennifer and Libby, for the opportunity to present for collaborative sustainability achievements over the past three or four years. The first thing I am going to talk about little bit here, is give you an overview of a couple projects that will be presented. The first is the M-10 Marine Highway. The Marine Highways are basically set up and sponsored by the U.S. Department Transportation and the Marine Administration to provide waterway solutions and parallel the Interstate Highway system. Really, with the intention of reducing highway congestion by diverting freight traffic to the waterways. As the number would indicate, this M-10 parallel the Interstate highway I-10 runs along the Gulf Coast area. This was an opportunity to move products out of the Monterey, Mexico area, across to Florida and the East Coast and the mid-Atlantic area. Of course the first leg was the road. The second leg was really the barge service that ran between Texas and Florida, then the services from Florida to the mid-Atlantic region. The real benefit here came from the offering of harmonized operations between Mexico and the U.S. For those of you that don't deal with Mexico or Canada on a frequent basis, we find that the transportation weight restrictions are higher than those in the U.S. So typically, you are not able to harmonize the load capacities whenever you are crossing borders. In this case, it really provided that opportunity. The second thing I want to talk about today is the load operations primarily from Monterey, Mexico and El Paso, Texas. This is really accomplished by developing strategic partnerships with other shippers as well as a third-party logistics company. Really what we are after here is to combine opposite densities to optimize the capacity utilization, both in terms of weight and cube. And we realize that these are both contributors to capacity, and we are really creating transportation savings via mode shifts as well as improvements in that capacity utilization.

First, I will tell you a little bit about us and who we are. They are a subsidiary of Mohawk Industries. You probably recognize Mohawk more so in the vein of carpet manufacturer. That is where it started and it is headquartered in Calhoun, Georgia. In addition to numerous carpet brands that are underneath the Mohawk Corporation, Mohawk owns two laminate flooring companies as well as four ceramic tile brands in the U.S. And those are Dal-tile and others. Dal-tile has 10 manufacturing organizations-seven in the U.S. and three in Mexico. Today I will focus on Monterey, Mexico as the point of our conversations. Also, it was announced about two weeks ago that Dal-Tile will build 11th manufacturing facility in Dickson, Tennessee. It should be online by late 2015. This plant will produce tile in the neighborhood of 20,000 up to 25,000 truckloads a year. Tile products are very dense, typically, 80 up to 90 pounds of cubic feet. So you are only using about 20% of the cubic capacity of a domestic trailer before we hit the weight constraints.

A little bit on the state of the industry. And what brought us to these collaborative solutions. There is a lot of talk and certainly some emerging evidence about capacity shortages. The industry purged a lot of assets during the economic downturn. What the carriers are finding today is the cost of the replacement of equipment has really skyrocketed. Emission requirements are more stringent today, and the cost of power is much higher than that was a few years ago. We also have, in terms of human resources, an aging workforce, and a lot of baby boomers retiring. I don't know about you guys, but I have not prepared my children to be truck drivers. It is not their career path and probably not the career path for most of our children. So there really is a void there in terms of human resources. We have also had hours of service changes since last June, that impacted driver productivity. I think the driver is still out on what the impact is overall, probably not as much as we feared, but still an impact. We are at a point where the industry needs something positive to offset all of these things that are really inflationary in nature.

What we have done here is really a question of how we as a shipper use capacity and realizing that every conveyance and mode offers weight and cubic capacity, we had intended to plan around the constraints being the weight capacity versus the opportunity that existed with the unutilized cube. Really what we are doing is questioning whether we are using capacity wisely.

A little on this M-10 Marine Highway: This really link to the production facility in Monterrey, Mexico, to both Miami and Baltimore, through the Port Manatee in the Tampa Bay area. The really important thing here is that allows us to harmonize weight from Mexico to Florida. The difference here in the weight is typically 43,000 or 44,000 pounds on over the road, from Mexico into Florida, versus 56,000 pounds by using overweight permit thing, and overweight permitting for delivery in Florida. The difference in the weight reduce the container count from about 1600 a year down to about 1200 in a year, primarily through the increase in the weight. This produced a 45% reduction and in logistics cost, in our project, manufactured in Monterrey and delivered into Florida and that the East Coast. Most of the 45% reduction came from the increase in weight. There was also a contribution to the reduction. It is a straight shot across the gulf versus the highway or rail system. It was also a favorable mode in terms of fuel efficiency. Barge traffic has very low fuel usage, and in the end, while it wasn't designed this way, it did reduce the overall transit time or time to deploy products by about six days on average. In reality, what we learned here was that, while we increased the weight and we were really working against the weight constraints, which are what we were focused on. It really illustrated to us the value of a cube, because although we have 65,000 pounds on a 40-foot container, we were only using about 35% of the cube. We began to look at that as an opportunity and it really illustrated to us the need to go further in regards to capacity utilization, and the real idea was here, we haven't optimized yet. We have improved our situation with constraints, but we haven't optimized the utilization of the capacity yet.

Another thing that we learned, some kind of a central theme for us, is that when you buy transportation capacity, whether you know it or not or realize it or not or care or not, you are buying both weight and cube. If you're transportation operation is constrained by factor or cube or weight, there might be value in pursuing collaborative alternatives, which I will get into now.

So in terms of this co-load solution, the account here was to contact other shippers and the Monterrey, Mexico and El Paso areas, and to focus on the cubic opportunity that we had on our lows, versus the weight constraints, which we have been focusing on. In order to do this, we had to develop sort of a tri- party transportation partnership, by using a three PL or third party company, and shippers in the Monterrey and El Paso areas that might be interested in collaborative opportunities. I spend a considerable amount of time trying to get this done on my own, prior to having help. It really made a difference having Transplace involved. Later on, we expanded the 3PL roll into customs and other parts of the solution that were needed, then either ourselves or partners really wanted to endeavor into, and Transplace provided those services. We really had multiple objectives with this: one was to reduce the transportation requirement across enterprises. This is not just focused on Dal-Tile, it is about the sum total of the capacity requirement between Dal-Tile and its collaborative partners. In doing so, we created transportation savings be a both motive shifts. One of us maybe had to in most cases, our partners have had considerable rail capacity that was available to us. And we were able to shift from either intermodal or truck, to rail, which was a more sustainable mode. In the end, we wanted to be sure that we have the benefits of being shared properly, to create a win-win, and what I mean, is both shippers and the 3PL, to create a win for everybody.

Let's talk a little bit about constrained versus opportunity. I want to clarify that for everyone. Capacity constraints, whether you are talking about cube or weight, can foster paradigms about how you run your operation and how you think about capacity in general. This picture that popped up is a picture of one of our partner loads, and it is styrofoam cups. If you can think of a better product to combine with tile, I want you to call me. These are low density products. In this particular case, this load looks very well utilized in terms of cubes. They use about 97% of the cubic capacity on a private load. And they will tell you it is only 8000 pounds. You say, wow, that is unfortunate. If you are that shipper, it is really hard to see that there is an opportunity here. When you're filling in all the cubes as well as they are, there really doesn't appear to be any opportunity here. It is 56,000 pounds it is only about 25% of the cubic capacity of the 53-foot trailer. So the idea here is that when you can put two types of commodities like this together, that are running in the same lanes, there should be a real opportunity here. What we saw was the barge service helped us to synchronize the 26 metric tons service from Mexico to Florida. That did a great thing for us, and reducing logistics cost. A reduced the landed cost and the transit time. It really didn't address anything that has to do with the remaining cube. That was the question that we started asking ourselves, as we saw the improvements that we got on the M-10 Highway. But then began to question, how do we get to the next step here?

Whether you are talking about containers or intermodal containers or over the road trucks, it doesn't matter. This picture that you see now is actually a boxcar. And we endeavored in the boxcar operations as well. This is basically a car that has 200,000 pounds of Dal-Tile product. It is right up to the 205 limit for weight capacity. You can see there is a lot of cubic capacity left. There is as much cubic capacity untouched as a 53-foot trailer has. The real idea here is that if we can focus on the opportunity, rather than focusing solely on the constrained, then we can probably create a situation that is much better. So focusing on the opportunity rather than the constrained, leads you into a solution, such as you see here now. We have appliances combined with the tile on a rail car. And the cube is very well utilized as well as the weight. And this generates a much lower landed cost for both shippers.

Another example is actually the one with the Styrofoam cups. And you are looking at a top view of a loaded diagram that we used in this solution this is actually equipment we were using on a backhaul basis out of Mexico back into the U.S. The squares that you see on the loaded diagram are actually Dal-Tile palettes. This is how we loaded them at the Dal-Tile plant in Monterey. We bother load over 4 miles to the Styrofoam cup manufacturer. And they sold it with the Styrofoam cups, which is the picture I showed you earlier. Not only do we get very good weight utilization out of the capacity, but we utilized the entire cube as well. In fact, last year, I believe we ran almost 1000 loads just like this, between Monterey, with a stop in San Antonio for the cops, and onto Dallas with the Dal-Tile product. Another example is aluminum and fiberglass stepladders. I have to admit, when I first saw this in El Paso, I did not immediately get it, how we would use this product to cope load with the Dal-Tile product, but you get creative people locked in a room and you will come up with something. And that something was a section load where this is the top view of a trailer. And what we have done is loaded sections of title, bundles of letters and so on, to be able to get good cube utilization as well as good weight utilization out of the load. In this particular load, it is up about 42,000 or 43,000 pounds, and utilizes the cube wall. These pictures show you a couple variations on the loading profile. The one on the left shows extension ladders in a three wide bundle. They would slide two wide bundles beside the three wide bundles. It is good utilization of the cube. The right-hand picture shows stepladders being combined with the tile. And it is pretty good cube utilization as well as keeping the load weight up to about 43,000 pounds. This project with the ladders ran from El Paso to Edison, New Jersey. So it is a fairly long linked to haul, and reduces the need for a lot of capacity. This happens to be in intermodal solution on this particular product.

Showing the pictures and everything is nice. It all makes it look really easy. But there are challenges and some of these challenges involve things like, development and maintenance of partnerships. I spend a long time trying to develop these partnerships and get the first opportunity to prove the concept. Until we engage Transplace, we never get that done. The first hurdle is finding partners that are like-minded, relative to collaboration. The other thing we have to evaluate which risk of this collaboration brings to your supply chain. As well, you have to think about how well you are going to be able to synchronize services between two manufacturers, in terms of volume, velocity and all the things that go on with customer demand. There is also the issue of liabilities around re- hauling with the ladders and appliances. All Dal-Tile is re- handled at partner facilities, so damages can be assumed by partners in the re-handling process. Then you have, apart from feeling like you have products that combine well, from a density perspective, you have to have the solution design. And you have to be able to execute it. We did all of this stuff in-house with the three of us working together. Lastly, there certainly are some animated conversations in regards to benefit sharing, and how everybody gets their fair share. I think we have some approaches now that help eliminate the discussion about benefit sharing. I think we have a pretty fair process we are using today. In the end, every one of these solutions, the participants have to determine is if the view worth the climb. I will tell you, and most of these situations, it takes six to nine months of working together before we really have an operation ramped up and producing sustainable results.

Thinking about the benefit side of this, there is a real need for transparency. And I think it is awfully difficult to have collaborative solutions without transparency. I think without the transparency, the collaborative solutions just don't have a strong foundation. So this transparency is really the basis for building trust and understanding that each partner is getting his fair share of the identified benefits.

Lastly, I want to cover some of the critical events that we had to deal with as we built a successful process here. The first thing was we really had to change our focus from focusing on constraints, being the weight from our perspective, to the opportunity being the unutilized cube. Another thing was that we had to accept the need for a facilitator. I spend six to eight months trying to build these relationships with the shippers in Mexico, many of them subsidiaries of U.S. national companies. But we really didn't get any action until we engaged Transplace, who was a respected 3PL, and could open the doors we needed to open to be able to talk to people about collaboration. Actually our first attempt to collaboration did not come away as a success. We attempted to engage a toy manufacturer in the Monterey area. And everything looked like it was the perfect scenario and we spent probably six months working on load designs and operations and processes. Eventually, got to the point where we all decided it was time to say uncle. We weren't going to get anywhere. As a result of that, Transplace and I sat down and did kind of a postmortem on, why didn't this go successfully. As a result, we came out with a list of about five things. As we evaluated potential partners that we had to have a strong connection on. And those five things are the items that have gotten us forward into seven partnerships now with other shippers. We have done a great job with designing and implemented the collaborative solutions. Each of these is a custom solution for each scenario. We have certainly gotten wiser as we have gone on, with pass to approach these things. And then, we have created an attractive benefit sharing process. The basis here is that, if you are sharing in the capacity of the conveyance equally, you should share equally in the benefits. That is really the driving force in determining how benefits should be shared. And lastly, we have executed well. We have had a lot of challenges to overcome. This is a very important strategy for us and our partners. In 2012 and 2013, we did about 4000 collaborative shipments with a net benefit of about $800 per shipment. At the end of this year, the goal is to be at about a $4 million benefits run rate on an annual basis. And there's probably about $6 million of opportunity within our network to do these types of projects. That is really all I have.

Questions & Answers

Jennifer Symoun
Thank you. I think we will start off the question-and-answer session with some questions for Sonney. We have quite a few questions. On the joint boxcar shipments, Dal-Tile and appliances, how did you coordinate the delivery schedules of two different products?

Sonney Jones
Okay. Those loads move into the partner distribution location, where the products are unloaded. So really, only one product, the Dal-Tile products, has to be removed from that location and taken to the distribution location in the immediate area. So those are really only a movement of one product. We typically use our own fleet for most of those services.

Jennifer Symoun
How did the scheduled delivery by rail boxcar compared to the truck or barge?

Sonney Jones
In all cases, we are trying to take on, I guess you would call it, slower modes of transit. Those are typically less expensive loads. And more fuel efficient and more sustainable loads of transit. So through our inventory and freight deployment system, we recognize products that have weeks on hand of inventory that allow us to use slower modes of traffic. So if something requires truck service, it still goes truck. But if there is enough weeks on hand, let's say four or five weeks of inventory on hand, we know that we can put the product on either barge or boxcar service, which would provide a lower-cost and not do any damage from an inventory basis.

Jennifer Symoun
We had somebody say that you referred to the 205,000 pound limit for rail, and the limit is 263,000 pounds. Is the difference between the boxcar weight and the 2063 figure?

Sonney Jones
I think the 263,000 pound figure includes the gross weight of the car. And the 205 up to 210 is typically where you are with high-capacity boxcars. A lot of boxcars are down around, if you get into the 50-foot variety, they are into the 550,000 load weight capability. If you get into the 60s, they are typically 175 except for the high-capacity cars which are a little over 200.

Jennifer Symoun
Thank you. We will move up to some questions for Donna and Dave. If you continue to think of questions, please type them in. How did MnDOT handle concerns regarding competition?

Donna Koren
Actually, that was very much an issue that we discussed. It was great that somebody thought of this ahead of time, we have a provision in the data practices act which says that we can keep interview data confidential. So when I was talking about discrete pieces of data that are tied to specific manufacturers and carriers, that is considered private data. So we will use that internally as MnDOT staff. And in the public reports talks more on specifics. But it doesn't tie specifics to specific manufacturers or carriers, unless we received approval from them to talk about their story. We could offer that confidentiality to the folks we interviewed.

Jennifer Symoun
Thank you. Where economic impacts estimated for the problems or solutions identified in the pilot study?

Donna Koren
That is a great question. No is the short answer. That would be a great companion piece. We wanted to keep the main focus on, what are the problems you are running into? And then think about, what we can do to address those. Of course the manufacturers and carriers know what they are experiencing with regard to loss and damage and that sort of thing. We didn't ask them for that information. We didn't want to divert the conversation. And we didn't want to get into areas that they might consider sensitive. On the other hand, if we think about the different changes we're going to make, if we can quantify that in terms of a return on investment that would be a neat piece of analysis to do. We were just thinking for this, what is the problem? What can we do to address it? Cost will factor into that. But I like the idea. And I will definitely give that some thought.

Jennifer Symoun
We have a few minutes left. I want to make sure we covered every question. We will see if anybody wants to ask a question over the phone.

I don't see any other questions typed in early either. If you do think of a question while I'm reading the closing, type that in. We will go back to that. I do want to say thanks to the presenters for presenting at today's seminar. I want to thank everyone in attendance. The recording and the presentations will be available online within the next few weeks. I will send out an e-mail. I will also send out an e-mail when the webinar is available for AICP CM credits. It is not there now. I will let everybody know when that is available. The next seminar will be April 16. We are still working on a topic. More information will be sent as well as a way to register as soon as it is available. I will send out a notice on the listserv. The LISTSERV is the primary way we share registration information about Talking Freight. If you have not signed up for the LISTSERV, I encourage you to join it and become part of a bigger freight community. With that, I don't see any other questions. We will go ahead and close out. Thank you everybody and enjoy the rest of your day.

Updated: 04/09/2014
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