Tag Archives: customer service

Surface Transportation Board (STB) Brings Baseball-style “FINAL OFFER” Game Theory to Railroading Rate Disputes

By Jeff Hartman – January 3, 2023

The STB, struggling since inception in 1995 to develop a fast, affordable, and reasonable method that provides relief to rail shippers challenging unfair rates in “small” zero-sum disputes in which a single railroad dominates the market, will shortly employ Final Offer arbitration to make a binary choice between competing final proposals from railroad and shipper that make the case for what each considers the highest reasonable shipping rate.

Previous efforts by the STB to provide tools for addressing smaller disputes were rarely used by shippers.

The STB’s Final Offer rule is designed as a backup in the case of the failure of a companion STB rule that provides for speedy voluntary, affordable arbitration to resolve rate challenges by stakeholders of any size where the dispute is less than $4M within a two year period—if all Class I railroads agree to use it.

Final Offer theory, developed in the 1940s in the United States, has notably been used by Major League Baseball to resolve disputes as well as state and local governments dealing with unions that are not legally permitted to strike.

In a Final Offer situation, stakeholders do not know what maximum reasonable rate the other side will propose and are thus incentivized to submit proposals that are more rather than less reasonable, and, thus, more likely to be chosen by the arbitration entity. This is markedly different from traditional reasonableness disputes, in which arbitrators would typically split the difference between rate proposals, encouraging participants in the dispute—who knew how the system worked—not only not to be reasonable from the git-go, but specifically to start by proposing unreasonable rates, figuring that whatever they proposed—reasonable or not—was likely to be averaged away.

If—and only if—all seven Class One railroads agree to STB-specified voluntary arbitration proposed in the new rules, the STB’s voluntary arbitration rule will be implemented and the railroads will be exempt from the Final Offer Rate Resolution (FORR) rule for five years.

The FORR rule has been in the works since 2019, when the STB issued a notice of proposed FORR rulemaking and solicited public comment. Five of the Class One railroads filed a petition promising to submit to binding arbitration—a methodology they had refused to participate in for many years—in return for exemption from Final Offer procedures. In response, the STB explored the viability of voluntary arbitration as a practical alternative for smaller rate disputes, and in November 2021 advanced rulemakings for both FORR and voluntary arbitrations, and issued the rules in December 2022 for implementation in early 2023.

Under the voluntary arbitration rule procedure, Class I rail carriers must all commit to five years of arbitration under an expedited schedule. Under the FORR rule procedure, if the STB finds a rate being challenged is unreasonable, both sides submit their case in an “expedited procedural schedule that adheres to firm deadlines.” The voluntary arbitration rule becomes effective 30 days after being published in the Federal Register, the FORR rule after 60 days.

According to STB Chair Martin Oberman, most of the shipper community has expressed a preference for FORR and most of the railroads for voluntary arbitration, but, according to Oberman, both have much in common, including timeframes, flexibility, and monetary limits, and provide shippers with access to more meaningful rate relief than was previously available to them.

“I am optimistic,” Oberman states, “that this time the Board’s efforts will achieve this long-desired goal.  I encourage the Class I railroads to accept the opportunity afforded by the new rule and sign up for the arbitration program they clearly prefer.  However, if they do not, in my view, FORR also provides a strong rate relief mechanism, and its availability would also streamline rate review processes in small rate cases.  To be clear, regardless of some differences of opinion about the most preferable way forward, all Board Members are committed to ensuring review of rate challenges are practical and affordable.”

Joanna Marsh·Tuesday, December 20, 2022

STB’s new rules attempt to ‘strike a balance’ between railroads, shippers – FreightWaves

Six Challenges to US Logistics

I received a nice writeup from Kyle Krug, representing Legacy Supply Chain Systems, listing six important challenges shippers face today. Legacy is a 3PL helping customers with their logistics for nearly 40 years. They have been trying to help their customer firms deal with these challenges.

Driving Limitations: Hours of Service (HOS) restrictions and Electronic Logging (ELD) have reduced trucking capacity. Even when the hours of service rules have been waived for essential transport, electronic logging means simply that a driver can’t lie about the time spent behind the wheel. That means they have to stop on time. While it’s true that some drivers may object to the intrusion of ELD, it’s probably better not to have those drivers doing the job anymore. ELD data could be immensely valuable to a dispatcher to determine bottlenecks preventing on-time deliveries, and should allow a 3PL or a shipper to optimize use of the available driving time. And while drivers and shippers may wish for more hours of service, it’s certainly safer to reduce them, and the effect could be moderated by using team driving for long hauls. Actually, drivers may be more inconvenienced by delays at warehouses that are not able to provide a load or unload in timely fashion. The shortage of parking places for heavy-duty trucks also plays a role; planning your HOS stop is much harder than it should be. A carrier software system should certainly be able to allow dispatch to take advantage of what it knows of history and the needs of the shipment to make choices better than manual dispatching, for both the shipper and the driver. That’s something software could take advantage of, for the benefit of both shippers and drivers. A 3PL should choose carriers that offer these options and take advantage of them.

Transportation Capacity: Recently there has been a shortage of truck drivers. Experts differ on the reasons. One theory says it’s because shippers and haulage firms have been taking advantage of drivers, making them want to quit. Others point to the aging of the truck driver force; younger people might not see driving as a career option. A third rationale is that especially during Covid, driving schools could not stay open, and the supply of newly trained drivers dried up. Another thought is simply the pay and benefits. Recent use of hiring and staying bonuses and increased pay have helped. And efforts to stop mistreatment of drivers through delays and altered contracts that cause unanticipated delays have helped. I’m not so sure this is as big a problem right now as it was during the height of the Covid pause. How can a 3PL help? By insuring that the carriers it uses have a reliable, fairly compensated workforce and that they don’t specify routes with unconscionable delays built in.

Lack of Flexible Solutions: Shippers have unique needs, and a 3PL needs to be sensitive to them. Excellent management software which supports many and well-qualified options can be a great benefit to shippers when the need varies. Sensitivity to shippers’ requirements for this order is important, and that benefit should be provided by helpful and understanding agents.

Inflation: We hear a lot about inflation right now, though it only seems to be rampant for a few items. However, inflation in fuel, repairs, and labor costs affects the price of transport, and through that prism the cost of everything, since it all needs to be transported. Shippers have limited ability to negotiate shipping costs. They could make a contract with a carrier, but in times of inflation, long-term contracts could be high. A 3PL should be able to help with decision-making on spot versus longer-term contracting, taking advantage of ‘arbitrage’ between the spot market for a route and the contract rate. That’s not the kind of activity a smaller shipper would usually want to get involved with. The 3PL should be able to flex between different options. A good software decision system should be helpful to an agent.

Pandemic Fallout: The pandemic was a new type of challenge. It created outages for suppliers and created congestion in supply chains. These were unforeseen; Covid was a new phenomenon. It taught us that our logistics systems need to be prepared for this type of disruption. A 3PL should be planning for disruptions of this kind, and have plans in place to handle the sorts of issues we saw with Covid. They should be able to share their plans with prospective customers, so shippers would understand how the 3PL will try to deal with the problems that might show up.

Increased Fuel Costs: Fuel surcharges are customary in goods transport. When fuel prices rise, carriers can charge additional sums to cover the excess fuel charges. Insurance, wages, and repairs have also risen. Shippers are only concerned about the total cost of transport. A 3PL can offer deals that insure the shipper is informed about that total cost before they commit to a shipment plan. Full disclosure is best.

I like these six issues. They affect trucking especially, though the same issues also plague other modes. They capture some of the major disruptions we’re seeing. A 3PL can be helpful in dealing with these. In fact, it’s disqualifying if the 3PL can’t or won’t offer solutions for these.

Some parts of the offer are enabled by the software and intelligent data they employ. Some parts can only be enabled by customer agents with the right cooperative attitude and determination to do the best for shippers. Selecting a 3PL means taking both into account, and then monitoring how the 3PL is actually doing.

A New Transportation Model: A 3PL should be able to offer flexibility and clear information to prospective shippers. Good software that can plan effectively, capture and present all the relevant information, measure the results, and make sure the customer is informed, is essential. A 3PL needs the commitment to make sure they can provide the software, and to have agents that work cooperatively with shippers and carriers to achieve their goals.

Logistics is about customer service. We are constantly reminded. Read the article below for more about Legacy 3PL and its notions.

Vessel schedule reliability lowest on record

The nice graphs here show that ocean carrier schedule reliability is extremely low, hovering between 30 and 40%.

Source: Sea-Intelligence, via Port Technology International

The COVID years of 2020 and 2021 have seen a remarkable drop from the 70% to 80% reliability of 2018 and 2019. Is COVID likely the culprit? To some extent the disruption it triggered caused order fluctuation that the ocean carriers with their very large ships were not prepared for. The ensuing port congestion coupled with the practice of blanking sailings of the very large ships when they were not nearly full caused the drop.

I don’t see how a service with a 30% to 40% reliability can maintain itself. The ocean carriers say that back to normal demand will fix the problem, but the fact is that demand for instance from Asia to the West Coast US is actually still below peaks of 2019. So normal demand would be higher, not lower.

Vessel schedule reliability lowest on record 27 January 2022 Port Technology International Team

Vessel schedule reliability lowest on record – Port Technology International