Resource Management

SPECIAL SECTION/RESOURCE MANAGEMENT: The Domino Effect

October 1, 2010
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A shift in protocol from the U.S. Department of Transportation might lead to shipping headaches for manufacturers.



Remember playing with dominoes as a kid? Beyond the game of dominoes itself, many children enjoyed the process of lining up each rectangular piece on a flat surface and spacing them just far enough apart so that when one fell, it knocked into its neighbor and set off a chain of events that led to a successful (or sometimes not so successful) end. When the setup was performed correctly, it was exciting to watch each domino fall in sequence and behave exactly as it should.

The goal was always the same: build the arrangement properly and work through the problems so that all of the dominoes would fall in succession. Failure to adapt to any obstacles often resulted in a break in the chain that ultimately put an end to the game.

The same kind of principle applies to the way business is conducted every day. When it comes to daily routines, most companies must manage by some type of sequence or method (most commonly known as a standard operating procedure) in order to be successful. Each step in a company's business process needs to occur in order for the next step to take place, and so on. If a change occurs somewhere along the path, it could trigger a series of events that will inevitably cause a shift in the overall process. This phenomenon is better known as a domino effect.

By basic definition, a domino effect is a chain reaction that occurs when a change causes a similar change nearby, which then causes another similar change, and so on. Most companies can adapt, but others fall victim to the chain reaction if they are not prepared.

Laying the Foundation

A shift in protocol from the U.S. Department of Transportation (DOT) might lead to shipping headaches for manufacturers. Approximately 640,000 truck drivers are currently listed through the DOT; each one (whether self-employed or employed by a company) is asked to maintain satisfactory driver safety ratings. These ratings should be monitored on a regular basis, but very few shippers are even aware that this protocol exists and many may be using carriers with unsatisfactory safety ratings as a result.

The government has decided to step up its efforts to monitor our nation's highways by overhauling the entire safety rating system. Compliance, Safety and Accountability (CSA) is a new major undertaking by many agencies that has been handed down to the Federal Motor Carrier Safety Administration (FMCSA). As with most government directives, there is some uncertainty as to how this new policy will impact motor carriers, and some elements of CSA could change.

The initiative is designed to assign safety ratings to each truck driver and their respective employer in six categories:
  • Unsafe driving (speeding, lane changes, seat belts, etc.)
  • Fatigued driving (log book violations, including hours of service)
  • Driver fitness (commercial driver's license verification, physical certificate)
  • Drugs and alcohol (any violations will count heavily against the motor carrier)
  • Vehicle maintenance (brakes, lamps, tires, etc.)
  • Proper loading/cargo issues (overweight, over width, cargo securement, etc.)


Hiring a negligent driver to haul loads puts the liability of any accident back on the shipper/manufacturer.

Crash Indicator

CSA aims to help quickly address problem drivers and motor carriers. The FMCSA has a process in place that starts with warning letters being issued and, if compliance is not met, leads to the eventual revocation of motor carrier authority. Some companies will be forced to shut down, while others will have to spend thousands of dollars to ensure compliance. The overall goal is to ultimately reduce the number of crashes, injuries and fatalities involving commercial motor vehicles.

However, the sheer scope of this new safety program all but guarantees a significant reduction in the number of trucks available to shippers. What was a simple, infrequently updated safety rating system will now turn into a complex, monthly monitoring system that will impact the day-to-day operations of virtually all transportation companies-and shippers. Initially, CSA will eliminate many drivers from the driving pool and threaten the careers of thousands more, resulting in a substantial driver shortage.

Ramifications

A shortage in drivers means that fewer trucks will be on the road. This reduced capacity will likely create an increase in demand that could ultimately lead to higher rates. Unless you deal with shipping every day, you won't notice these changes until it's too late. Your rates will increase and delivery delays will occur because it will become increasingly difficult to find a quality carrier to haul your freight.

"We've started to see the pendulum shift," says Lance Turner, vice president of Business Development for FLI, Inc. "The shipper used to have a huge advantage over the carrier, because when the economy started to slide, companies weren't shipping as much freight. Carriers were hungry for business, rates were low and trucks were sitting empty. With this new mandate, we're seeing the advantage shift to the carrier. There won't be as many drivers on the road, so carriers can pick and choose what kind of freight they want to haul, and they can command higher prices."

As the demand for trucks increases, more and more companies are turning to third-party logistics companies (3PLs) to ease the burden. "As a logistics company, we have a very large number of carriers at our disposal, yet the truck pool is shrinking," says Turner.

Obstacles Facing Shippers

What shippers and manufacturers may not realize is that they will be required to be more attentive to how they handle carriers. For instance, requiring a driver to wait for an extended number of hours could result in an excess of logged service hours without a required break-a recordable CSA violation for the driver. The shipper/manufacturer will have to adjust this process. Scheduling, shipping and receiving procedures will have to be reevaluated in order to ensure that drivers are compliant with logged hours.

In addition, hiring a negligent driver to haul loads puts the liability of any accident back on the shipper/manufacturer. If a shipper/manufacturer does not perform due diligence on a driver with a poor safety score and tenders a load to a driver with an unsatisfactory rating, the liability for any accidents could fall back on the shipper/manufacturer.

Two options are available to shippers/manufacturers to keep the process flowing smoothly. The first is for the shipper/manufacturer to arrange for the shipping of its own product. In order for this to be successful and limit the liability exposure, they must have specific, consistent procedures in place.

Some liability may still exist, however. As reported in Transport Topics (4/6/09), for example, C.H. Robinson brokered a load to Dragonfly. Dragonfly's driver was driving on a suspended CDL and was involved in an accident. C.H. Robinson was included as a defendant and was found vicariously liable; the jury awarded $23.8 million in damages. In situations like this, the shipper/manufacturer could have been liable had they arranged for this shipment. Since smaller motor carriers normally carry only $1 million in liability limits, the remainder may become the responsibility of the shipper/manufacturer.

The second route a shipper/manufacturer can take is to hire a 3PL to handle the transportation of its goods. Reputable 3PLs have the infrastructure in place to monitor and qualify motor carriers. This effectively transfers the risk of brokering loads from the shipper/manufacturer to the 3PL and shields the shipper/manufacturer from any direct risk.

"With CSA coming into play, the 3PL can be a huge asset to companies that do not own and run their own trucks," says Donna Cook, vice president for Lockton Companies, which provides insurance, risk management and employee benefits services. "With motor carrier ratings being updated every 30 days, the new CSA program will be creating more liability landmines, and a good 3PL can navigate this mine field for the shipper."

For additional information, contact FLI, Inc. at 12980 Metcalf Ave., Suite 240, Overland Park, KS 66213; (913) 638-1964; (866) 291-3500; fax (913) 851-3377; e-mail ewinner@fliinc.net; or visit www.fliinc.net.

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