CSCMP panelists 'pessimistic' on freight market outlook

David Hannon, Purchasing Magazine -- Logistics Management, 10/26/2007

That’s how Justin Zubrod, vice president at consulting firm Booz Allen Hamilton summed up his thoughts on the logistics market in a panel at the Council of Supply Chain Management Professionals annual conference this week in Philadelphia. And Zubrod’s thoughts were echoed by the other panelists at the “Domestic and International Freight Market Outlook” panel earlier this week. 

“All of the logistics modes’ value chains are under attack despite their years of productivity gains,” Zubrod continues. “Freight customers are unwilling to pay for improved service and technology in today’s market. And transportation executives should be ready for two tough years.” 

Richard O’Meara, manager of global transportation procurement at Goodyear, agreed, saying shippers are under the same cost pressures to pay less for more. “As a shipper, I’m pessimistic as well,” O’Meara said. “Fuel costs and congestion issues will get worse and it’s clear there’s not enough investment to keep up with the demand for domestic freight services.” 

Another shipper on the panel, William Hutchinson, director of domestic logistics for Dell, said premium services from logistics providers were considered the “price of admission” by shippers in today’s market. The issue that concerns Hutchinson most when considering the long-term outlook for freight in the U.S. is “the challenge of investment in infrastructure and who pays for it.” 

Truckload carrier Schneider National’s Tyler Ellison said the housing slump will continue to impact the truckload market, as truckload demand bottoms out. “It can take a good six quarters for housing to rebound once it bottoms out,” he said. 

Morgan Stanley analyst William Greene said his firm is predicting an economic recovery in the second half of 2008 but agrees the lack of infrastructure investment is an ongoing concern for the freight market. “What will it take to get that investment on people’s agenda?” he asked. 

When asked about the prospect of the government’s investment in infrastructure, Zubrod simply said “I think we’re on our own. We’re not getting any help from the government at any level. I don’t know anyone in logistics that likes this Congress.” 

Hutchinson says for shippers, the current market is a good opportunity to partner with the best carriers rather than chasing the lowest cost. “Then you won’t be stuck looking for capacity when the market does tighten up.” 

Ellison added that more fuel refining capacity in the U.S. will help control fuel prices in the long-term but says “oil prices will continue to rise in the long-term. That’s why it is more important for shippers and carriers to work together on these issues.” 

“Partnerships do have power,” O’Meara emphasized, adding that the right carriers are those that don’t just raise rates because they can or ask to renegotiate the contract as soon as the market changes. He recommended shippers look to “partner with carriers for the long-term, but not dilute their leverage by using too many carriers. But it’s not easy to find carriers that will sign a three-year contract.” 

Ellison pointed out that true long-term shipper-carrier partnerships require C-level support, but that those partnerships can lessen the price volatility present in the industry today, which should catch the C-suite’s eye.