Sage Advice: 2012-Looking back and ahead
December 01, 2012
Not unlike 2011, rising fuel, equipment, health care, and driver wages generally pushed over-the-road freight rates higher. While bidding did not disappear, the more prudent shippers chose to work closely with their carrier and 3PL business partners to protect capacity. While demand was occasionally tight in the first half of the year, the quest for resources in the third and fourth quarters—apart from hurricane Sandy—did not tax the system.
Jeffery Brashares, senior vice president of sales for TTS and foremost industry expert, says that intermodal continues to be the bright spot in rail growth and forecasts that it should continue into 2014, albeit at a slower pace. Service excellence, more shippers going green, box capacity, and competitive price have all helped drive this growth and have provided savvy shippers with savings opportunities this year and into the future.
Albert Saphir, principal at ABS Consulting, reports that for shippers that negotiated reasonable base rates for longer-term stability on ocean freight, not much changed on major lanes—although rates did go up and down again a few times based on a number of factors.
However, Asian ocean rates tied to spot market or low-end margin pricing did see a significant jump after the first quarter of 2012. Saphir feels that 2013 should be pretty much the same. With mixed economic forecasts, ocean carriers will try to manage available capacity, especially on refrigerated containers, to improve their ROI.
Over the past year shippers continued to look to third party logistics providers (3PLs) to reduce headcount as well as cut fixed warehouse and transportation assets while improving service. The 2012 3PL Study that’s headed up by Penn State University’s John Langley, suggests that 65 percent of the shipper participants in the study increased their use of 3PLs with 86 percent success. Notably, most participants sought 3PLs for traditional operational and repetitive activities such as transportation and warehousing, freight forwarding, and customs brokerage. To a lesser extent, shippers turned to 3PLs for value added services such as reverse logistics, transportation planning and management, inventory cross docking, packaging, and labeling.
Taking all of this into consideration, this is what I believe will take place in 2013:
Logistics will be pushed to outsource both critical and non-critical areas to relieve pressure on their company’s working capital.
Domestic carriers will push rates about 5 percent to retain/ attract CSA qualified drivers and upgrade their equipment. They will be even more selective about their customers. If you think any old carrier will do, think risk mitigation….and think again.
Least cost ala carte rate structure will be expanded with accessorials that are fair to both parties, and shippers will urge their sales team to offer new delivered options to clients.
Packaging will continue to play a critical part in reducing logistics costs, such as P&G’s PODS.
- Private/dedicated fleets and collaborative efforts via third parties will continue to create and maximize carrier productivity and control costs.
During the course of next year, smart shippers and 3PLs will need to monitor carrier BASICs rigorously and consistently. Supporters of the new administration will pressure CSA to eliminate the 34-hour restart and reduce HOS. While implementation would be delayed, begin looking at the impact on your backhauls and recognize where shifts in shipper networks could leave you vulnerable. Continue to support NITL, NASSTRAC, and the ATA as they push for a reasonable ruling.
Savvy shippers will also spend more time on contingency planning for extraordinary natural factors, unanticipated distribution shifts, and systems outages that have the ability to stretch and break supply chains. If you can’t do this in-house, seek outside help.
The big difference between my thoughts and yours is that I get to write and lament about them. As for you, this is your livelihood. Your job is strategic, not transactional. Work hard to understand the elements that your carriers and customers value, and measure your effectiveness in meeting and exceeding their expectations. Work aggressively to make sure your customers, carriers, and your boss can’t afford to operate without you.
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