Logistics Q&A with Pilot Freight CEO Richard Phillips

As a full service 3PL and non asset-based 3PL services provider with a major presence in freight forwarding for multiple modes, Pilot Freight is very active in many facets of supply chain management and logistics. And with the economy showing signs of life, logistics and forwarding activity are seeing some decent growth and margin trends. Logistics Management Group News Editor Jeff Berman recently spoke with Pilot CEO Richard Phillips about what he is seeing in the various markets Pilot serves. A transcript of the conversation is below.

LM: On the brokerage and forwarding side, what are you seeing in terms of capacity?
Is capacity tight or has it loosened up a bit? Are shippers having a hard time securing capacity?
Phillips: We are not seeing a huge problem with capacity; it always tends to lag the market. When demand goes up, it takes a while to come back on line. And it takes a while to go off line when demand shrinks a little bit. But we are not seeing a major problem on ground capacity right now. Where everybody is struggling is in the air. We continue to face pressure in terms of air capacity. We have been responding, and we have good relationships with the airlines and are pushing back every way we can but it is pressure everyone is facing.

LM: What are some of the main pressure points in the air cargo market? Fuel? Carriers laying up planes?
Phillips: The overall trend has been a decrease in domestic wide-body lifts, which removes some options, and even narrow body lifts for certain types of freight have been moving towards regional jets. Since the BAX network went down and Kitty Hawk went down, it put more pressure on our local stations. It used to be if you were moving freight from Chicago to LA, pretty much any forwarder could get it there.  Now you need to be more creative in the expedited business and know what all your options are, not just in your origin city but you can do in terms of trucking [freight] up to another airport or create a solution at the destination end as well. It is not something I welcome, but it is something we are attacking and see as a competitive advantage. I do believe we do a good job of putting and making resources available for our folks routing freight and make it work operationally.

LM: How many airlines does Pilot work with when providing forwarding services?
Phillips: It is in the dozens, with certainly every domestic air carrier and pretty much every global air carrier.

LM: Let’s shift gears to the ocean side. There have been many reports of ocean carriers not having rate hikes stick, coupled with being forced to lay up vessels due to a lack of anticipated demand, too. It has created difficult market conditions. What is your take on this?
Phillips: I think ocean demand will come back. The industry is cyclical…after some feelings of security regarding demand return, more capacity will come back on line. It is closely related to near shorting. We are seeing a lot of manufacturing that had been taking place first in eastern China and then moving west for labor advantages and then eventually out of China altogether into other countries in southeast Asia. Some of this will come back but not necessarily to the U.S. but certainly to Mexico. What we are seeing is that manufacturers are getting pretty smart about what they are bringing back to where there is a better educated and better qualified work force. Those products are coming back to Mexico, and we are seeing more electronics and related products, where an educated workforce can bring value to a company’s productivity numbers.

LM: There is a fair amount of renewed interest and talk regarding near shoring, it seems. About nearly four years ago gas and fuel prices were are record levels, and the possibility of increased near shoring was discussed a lot. But now the reasons for doing so are different in some cases such as natural disaster, terrorism, or geopolitical issues. What are you hearing about this when you meet with customers?
Phillips: There is certainly the risk of natural disaster and to the extent that our customers can protect themselves against something like that they are not including that consideration into the process. What’s more, what so many electronics products rely on now is speed to market in ways they have not before. And they are more careful about the windows in which they can sell that product and get that product onto American shelves as quickly as possible. With this two things happen: 1-of the products that are made in China, many move in the air now; and 2-in many cases, the actual manufacturer is moving to Mexico and sometimes into the U.S to leverage the speed to market advantage. 

LM: What are some of the biggest concerns you are hearing from customers these days?
Phillips: The customers I talk to are mostly concerned about a few different things. One is the economy in general. It feels like the recovery is taking hold but still a little shaky. Another thing I hear all the time from customers is concern over how to navigate the regulatory environment and the carrier capacity environment better than the competition and use the supply chain as a competitive edge. That goes beyond price and rates, especially with respect to the regulatory environment. It gets to the heart of the relationships between customers with their forwarders and carriers.