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905D01
TOTALLINE TRANSPORT
Ken Mark and Jordan Mitchell prepared this case under the supervision of Professor Larry Menor solely to
provide material for class discussion. The authors do not intend to illustrate either effective or ineffective
handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written
permission. This material is not covered under authorization from CanCopy or any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey
Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London,
Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2005, Ivey Management Services
Version: (A) 2005-06-03
INTRODUCTION
In early November 2002, Roger Eacock, vice-president and general manager of
Totalline Transport, was standing on the shipping dock of Electronics
International warehouse in Brampton, Ontario, when he asked an operations
manager, “What gives you grief?”
The operations manager responded,
I’ll tell you what gives me grief! Look at those 25 trucks out there
all waiting to get in. Some of them are probably a half or even a
quarter full. And, when they’re sitting idle, there’s a good chance
that the carriers will charge our suppliers detention fees.
Eventually, those come back to us, and we have to explain why we
couldn’t receive the trucks at the scheduled time. It becomes a
scheduling nightmare if trucks are waiting and delaying other
trucks, and it costs us money in not getting the product to ship it to
our stores in time for the holiday season.
Eacock looked out into the yard and saw a number of Totalline’s trucks in the
queue. Totalline was hired by various suppliers such as Sony, Bose, Panasonic,
Samsung and Toshiba to deliver to Electronics International. So, while
Electronics International was not a direct customer, Eacock wondered what he
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could do to change the situation as Totalline had incurred $7,0001 in late
appointment fees from Electronics International for the month of October. He
wanted to eliminate those charges. He also thought about Totalline’s model of
customer success and how he could provide enhanced service to his customers’
customer. Eacock assessed the problem:
The bottleneck in the process is the waiting time to unload. It could
be anywhere from 10 minutes to five hours. The loading time
varies on the complexity of the product. So a skidded shipment
can roll right off the truck on to a forklift and go into inventory. A
non-skidded delivery, such as refrigerators or ovens, could take a
while. If the carrier arrives 30 minutes late, the retailer will charge
the carrier $1,000. Conversely, the carrier would charge detention
fees if they’re sitting waiting in the line. The charge would be
between $50 and $60 an hour. Imagine that the supplier’s freight
is $200 plus the waiting time. Detention fees are a significant cost.
Then the supplier screams. We show them the proof of delivery.
And you can see what a vicious loop it is. It goes to the buyer’s
desk at Electronics International. From there, it’s passed on to the
Electronics International operations group, and they ask, ‘Why was
there a two-hour delay on a Wednesday morning four weeks ago?’
They’re spending all this time chasing past orders to look into
detention fees for waiting times. Probably a day a week of their
time is spent investigating carriers.
When you look at it from Electronics International’s perspective,
they’ve got two main problems:
1. Carrier — they’ve got so many trucks per day coming through,
and they have to deal with pure volume.
2. Waiting time — this causes detention fees from the carrier to
the supplier and then the supplier back to the retailer.
And, from our perspective, when we levy detention fees, they are
mostly cost recovery . . . you’ve got a driver, the fuel for waiting,
both of which are real costs. Then you also have the opportunity
lost of the delivery of other goods. We don’t make money from it.
But, what’s really disturbing is that we paid out $7,000 last month
in late appointment fees. That must be eliminated immediately!
1
All amounts in Cdn$ unless otherwise specified.
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TRUCKING INDUSTRY IN CANADA
The Canadian trucking industry was worth $45 billion in 2002, employing
approximately 400,000 people.2 The industry was a critical barometer in
measuring the health of the economy. Over 90 per cent of consumer goods within
Canada were transported by truck. On average, trucking grew 9.1 per cent and
warehousing grew 4.5 per cent during the 1990s. Trucking was the most
widespread transportation choice as it was flexible, timely and was supported by
extensive road networks. Trucks carrying imports or exports moved frequently
across the Canada-United States border with an average of one truck every 2.5
seconds crossing both ways. The North American Free Trade Agreement
(NAFTA) fostered greater trade in North America, making it beneficial for
companies to integrate cross-border shipments and automate customs procedures.
It was estimated that there were 612,000 truck trips per week on central highways
within Canada. The events of September 11, 2001, negatively affected the stock
market, slowing trade and, hence, transportation requirements. Further, border
security increased and insurance companies increased rates by 110 per cent to 120
per cent, putting pressure on trucking companies rates.
The trucking industry in Canada was broken down by private and for-hire
trucking, known as common carriers. Private trucking included those businesses
that used their own fleet to move their own goods, as opposed to common carriers
whose principal business was trucking. There were over 32,000 for-hire firms or
individuals operating over 65,000 trucks and nearly 500 private operators.
Trucking traffic was divided into intra-provincial, inter-provincial and transborder activity. The type of shipments were classified as either LTL (less-thantruckload) or TL (full truckload) shipments. TL, which involved shipments
directly from the supplier to a terminal or warehouse, made up over 90 per cent of
Canada’s total trucking industry. The remaining 10 per cent of the industry was
classified as LTL, which was defined as either partial-load shipments that went to
one destination or full-trailer load shipments that went to multiple destinations.3
LTL (less-than-truckload) services involved picking up freight from the customer
and taking it to a terminal to be consolidated with other freight. The terminals
were organized according to the destination of the goods. Upon arrival at the
destination, the freight was separated and delivered to individual warehouses or
stores.
There were over 100 competitors vying for the business of transporting goods
across Canada. The larger carriers typically offered a range of services, with a
significant portion of their trucking revenue coming from TL shipments. Other
trucking companies competed for servicing a particular geographic area, like the
Ontario-Quebec corridor, the Winnipeg area or the West Coast, especially with
LTL services. The LTL industry was highly fragmented with several competitors
2
“A $45 billion Industry,” Trucking Industry, www.statscan.ca, July 15, 2003.
Stephens Inc. Web site, “Research: Transportation & Logistics,” accessed May 17, 2004.
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trying to carve out a specialty or niche. It was normal to expect that LTL carriers
travelled between 100 and 1,000 kilometres to delivery goods. One prominent
LTL competitor commented, “An LTL carrier is a little bit like a cross between
the post office and a TL carrier. An LTL carrier requires a major investment in
freight handling terminals and equipment and is very much more paper intensive,
requiring up-to-date information technology to allow for shipment tracking.”4
Exhibit 1 compares Totalline’s major competitors.
Carriers looked for ways to offer value-added services to their customers. Some
trucking companies expanded into warehousing, while others formed alliances
with other supply chain service providers such as third-party logistics suppliers
(3PLs) or technology consultants. Technology was being increasingly promoted
as an additional service — this included online shipment tracking implementation
of warehouse and on-truck software, electronic organization of customs forms and
electronic payment options.
Third-party Logistics Suppliers
The Canadian marketplace saw the emergence of 3PLs who offered a seamless
supply chain system, taking care of the complete process: transportation,
warehousing, inventory control, order processing and customs brokerage. 3PLs
enjoyed strong growth as companies attempted to cut costs, focus on their own
competencies and streamline their supply chain processes. Using a 3PL also
allowed more choice and greater access to up-to-date technologies. 3PL suppliers
competed on the basis of price, flexibility and global capabilities. While some
companies chose to consolidate their shipping with one 3PL, others felt the risk
was too great and thus opted to deal with a few select 3PLs. Other companies’
management was hesitant to let the 3PL be the face to their customer and was
cautious about losing control of supply chain processes.
TOTALLINE TRANSPORT HISTORY
Totalline Transport was founded by Uwe Petroschke in 1986, when he started
shipping with one truck from Toronto to Vancouver. Petroschke saw that while
the Ontario-Quebec corridor was well served, trucks heading to the West were in
demand. In 1987, Totalline began to offer warehousing services, which involved
the storage, organization and shipping of other company’s physical inventory. By
the early 1990s, the operations had expanded into the Maritimes and Quebec. In
1999, Totalline Transport purchased Transit Transport, a family-run enterprise.
Uwe Petroschke commented about the acquisition:
4
Reimer Express Company Web site, www.reimerexpress.com, History, accessed October 24, 2003.
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This strategic union strengthens our ability to better service our
customers and creates an expansion of service choices and
coverage. We have acquired Transit Transport primarily because
of their strength and high-quality services in the Quebec and
Eastern Ontario markets, and their knowledge and expertise in
unique, guaranteed expedited services through their expedited
division, Premier Express.5
In 2002, Totalline Transport posted sales of over $42 million with transportation
jobs in the United States as well as Canada. Totalline won the Ontario Chamber of
Commerce Outstanding Business Achievement Award, making it the first trucking
company to be awarded the accolade. By this time, Totalline had 110 full-time
drivers and contracted additional drivers on a contract basis. Exhibit 2(a) shows
Totalline’s performance results from 2000 to 2002.
For branding, Totalline wanted to create brand awareness with its logo, which is
shown in Exhibit 2(b). The company also placed its trucks in movie and
television productions, giving the company another avenue by which to market its
name. Eacock commented, “We have taken an ‘up-town’ view of marketing to
differentiate the company from the rest of the industry. Like Nike, we use the
company logo as much as possible as a standalone, with the company name and
logo together as a secondary marketing layer.”
To create press, the company launched its “Momentum” campaign, where it
commissioned a local artist to use its trucks to paint works of art, which aimed at
providing a positive image and differentiation for Totalline within the trucking
industry (see Exhibit 2(c)). Eacock commented:
We wanted to make a splash. Internally, we wanted to make people
feel great. We treated the trucks like blank canvases. Every truck
is unique and different. We wanted to create a train-spotting type
of activity. We have 160 trucks in our fleet, and we painted six of
them in the first round. We’re working with schools and offering
art scholarships for people who come up with good ideas. We
created a lot of interest. Fashion Television even came and
interviewed us about the trucks.
5
“Totalline Transport Inc. Announces
Totallinetransport.com, August 9, 1999.
Acquisition
of
Transit
Transport,”
Press
Release
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TOTALLINE’S SERVICES
Three central activities fell under the Totalline umbrella: Totalline Transport,
which offered freight and warehousing services across Canada; Premier Express,
which guaranteed delivery time in Central Canada; and TLC Logistics, which was
involved in trans-border and international shipping by ground, air, ocean and rail.
Totalline Transport made up 60 per cent of the company’s revenues, TLC
Logistics made up 10 per cent, 10 per cent was attributed to Premier Express and
warehousing accounted for the remainder. Exhibit 3 details Totalline’s shipment
guide and service features.
Totalline’s primary business was LTL standard and expedited transportation.
Totalline utilized five consolidation points across Canada, with its central
operations being housed from a 330,000-square-foot facility in Vaughan. The
company’s other four facilities were 100,000 square feet in both Montreal and
Vancouver and 50,000 square feet in both Ottawa and Calgary.
Totalline’s Focus
Totalline had developed expertise in the transportation of electronics, high-tech
goods and other products that were prone to damages during shipping, such as
apparel. This was in contrast to many of Totalline’s competitors, who did not focus
on shipping a specific type of good or servicing a particular industry. There were
exceptions such as the shipment of food products, which frequently required
refrigerated trucks, or the shipment of large industrial equipment, which demanded
specialized trailers. Eacock gave his assessment of the electronics industry:
The industry has been so consumed with competition through pricecutting that service has suffered. In the customer’s world,
competition is fierce and margins have eroded. There is not much
differentiation in a DVD players amongst the top five electronics
firms so everything is now a substitute. The winners are the ones
who can execute their supply chains effectively and keep costs low.
That being said, the killer is not the hard cost. It is the soft costs —
losses, damages, missed deliveries leading to stock-outs, detention
fees, vendor compliance fees, etc. For example a missed
appointment fee of $1,000 will eat the profitability on the next
three truckloads of DVD players.
If a box is damaged, it will sit on the shelf and end up as a returned
product. Also, the perception of that damaged product will detract
from the quality image of the brand. A former president of the now
defunct Peoples Express Airlines in the U.S. said ‘coffee stains on
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the flip down trays imply we don’t do our engine maintenance
correctly.’
Eacock explained Totalline’s service concept:
We’ve changed the idea of customer satisfaction to customer
success — that means thinking about how we can make our
customer successful. We align our services based upon the
customer’s objectives and the customer-defined service metrics.
We have to find out what’s important to them and that means
thinking about how we can alleviate the cost, inefficiencies and
stress for the customer at a supplier like Sony or Toshiba and the
operations department at a retailer like Electronics International.
Part of that is making our delivery a product. How does the
product look when it’s delivered? What is the appearance of the
driver? For instance, we don’t want to deliver a scuffed box with a
TV in it. We want intact, clean boxes every time. Returned
product in electronics is brutal. They probably lose twice their
margin. Margins in electronics have become razor-thin. For
instance, suppliers probably make about $7 per DVD player.
The driver is a direct extension of the customer’s brand. In the
virtual world, our driver is the only living entity that the retailer
actually sees of the electronics company. We have an opportunity
to make or break the quality brand perception of the customer in
the eyes of the retailer. The attitude of the driver is a make or
break. If they’re in a bad mood or rude, it won’t work. We’re
working against the classic image of a trucker — the butt crack and
biker guy.
We want to become the preferred carrier and play within the
premium sector. Carriers are the last ones to see the product. We
bring brands to market. For someone like Dell Canada, they never
see the product. We want to focus where we have expertise. We
want to build confidence with our customers by dealing with
companies such as Bose versus a skidload of pigs feed.
Pricing
Totalline’s pricing was approximately 15 per cent to 20 per cent more than the
lowest priced carrier. Within the Greater Toronto Area, delivery costs for a full
truck would be approximately $500. For cross-country deliveries, a full truck was
valued at $4,000. Carriers typically had margins of 10 per cent to 20 per cent.
Eacock talked about Totalline’s price premium:
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The real savings with shipping is in the inventory. The company
owns that inventory, and it’s tied up in transit. You can cut a little
bit with pricing, but if a carrier will save you millions, the 20 per
cent premium price will be worth it.
Eacock elaborated on how Totalline saved a company three days in inventory:
Distribution centres typically manage between 200 and 1,000 faxes
a day, either from suppliers or carriers, and they try to slot them
into an appointment grid. The total time is about five days from
time of appointment to confirming the delivery. And that’s five
days in someone’s inventory, usually. Now, if there’s a way for us,
as the carrier, to eliminate that work where we can basically make
the appointment and schedule the delivery for the next day,
assuming it is within Ontario, we’ve just cut out three days in their
in-transit. So, suppose an average company that we service in
Canada has approximately $30 million to $35 million in inventory.
Take $30 million divided by 30 days multiplied by three days of
savings in transit. That equals $3 million dollars in savings. It
increases the company’s ability to turn inventory.
That’s
significant!
On-time Delivery and Shortages
Eacock was proud of Totalline’s on-time delivery and low overages, shortages
and damages (OS&D) performance:
For instance, in the industry, one of the major problems is OS&D.
The industry average is one per cent and Totalline’s is 0.0011 per
cent. Another is on-time delivery — 99.6 per cent for Totalline
while the industry is 98.3 per cent. So with a 99.6 per cent
probability, we have comfort that it will arrive on time. Only four10ths of the time, we’re late.
Totalline credited its low OS&D rate to strict adherence to a standard operating
procedure wherein the company performed a seven-step paper check and an 11step physical check. The intent was to place the paper and physical checks during
all the steps where OS&Ds occurred, and although this took more time, it did not
eat into Totalline’s delivery schedule and provided the benefit of avoiding costly
claims. Totalline also facilitated a track and trace service on its Internet site
where customers could find the status and contents of any shipment. This helped
reduce problems in the case that an error could be caught before the delivery of
the products. The management of Totalline was responsible for setting up and
adhering to customized operating procedures (COPs). …
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