The road ahead for logistics and transportation management
We asked SAGE ADVICE columnists John Gentle and Wayne Bourne to answer a few questions in an effort to neatly summarize the past 11 months and help shippers prepare for the road ahead in 2011. Here’s what they had to say:
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Logistics Management: In retrospect, how would you define the logistics industry’s climate in 2010?
John Gentle: It was mixed. Predators continued to be unreasonably aggressive while more enlightened logistics teams took a more moderate and a somewhat more cautious approach to the carrier marketplace. I would also say that the industry has, once again, not created contingency plans for extraordinary events that will stretch and break supply chains; and regrettably, many shippers have cut staff back so far that there has been a loss of logistical talent coupled with some incredibly poor cost-saving judgment.
Wayne Bourne: I completely agree with John’s observations and would add that I think that whatever progress was made by shippers and carriers it was watered down. Rates were drained of any meager margins as many shippers took advantage of the capacity flip. It was most definitely a short-term gain. Relations between demand side and the supply side limped along very cautiously. However, those who practiced the partnership philosophy will move to the front of the line.
LM: How accurate did your predictions for this year turn out to be?
JG: Quite accurate in fact. Both Wayne and I concurred and predicted a tightening of carrier capacity from bankruptcies and the loss of drivers to the economy—many of which are not coming back. We also agreed and witnessed good shippers providing rate increases to keep their best carriers financially viable. We agree that there will be a significant and additional loss of driver capacity from CSA 2010 and electronic on-board recorders (EOBRs).
The good news is that we will drive higher risk drivers out of the system; the bad news is that we don’t have a skilled pool to replace them. And for the first time I have heard of carriers taking on 21-year-old drivers. The good news on that front is that their records are clean, and if they can keep them clean these new drivers can attract good pay. Lastly, I felt all year long that the Democratic Congress and Administration were committed to a change in hours-of-service. This will force very dramatic changes to today’s supply chains, as customer demands for response time and low inventory levels will not change their required lead time.
WB: I wish I had been this accurate with my predictions as a W-2 employee as I recently was as a consultant. I had predicted that in the fourth quarter of 2009 we would see a modest growth in inventory deployment followed by strengthened first- and second-quarter business results.
I further suggested that this holiday season would be as good as the 2007 season and that inertia would cause it to last throughout January as a result of the significant growth in gift cards. This information by itself is simply “nice-to-know” type stuff. However, when coupled with the capacity issues that come with it, it was perhaps great info to believe—if you wanted your fair share of the tightening carrier capacity.
I also predicted a flattening of the fleets. I just couldn’t see major players adding incremental units to their fleet, considering the rate levels being as depressed.
LM: What were some notable trends throughout the past 11 months?
WB: I have sensed the notion of responsibility and ultimate accountability that the “new” shipper executive managers have adopted recently. Attendance is up for the major conferences and seminars that focus on supply chain education and training. More and more, managers are interested in all of the forces that will shape their short-term through their longer-term horizons.
I am also pleased with the slow but sure growth in the longer-term contracts that are being negotiated between the parties. And everyone needs to be delighted with the enormous push that shippers and carriers have both made in becoming more lean and green. Reducing our carbon footprint will have benefits for us all.
JG: More enlightened shippers recognized the importance of “relationship management” and worked aggressively to ensure that their capacity would be in place when needed. Some shippers took the base fuel cost element out of line-haul rates and renegotiated the line haul rates—sans fuel. Carriers (OTR and steamship) are doing a good job of idling unneeded equipment and controlling cost and price.
Supply chains have learned how to save time and cost by effectively bypassing LA ports. Lastly, all carriers (OTR and steamship) have recognized the environmental, safety, and cost efficiency of slower speeds. This will have an impact on service, transportation cost, as well as inventory costs.
LM: What do you see coming down the road for 2011?
JG: Regulatory changes aside, even with a small growth in GDP transportation costs will increase. Those increases will most likely be led by driver wages, healthcare, equipment costs, and the need carriers have to create and maintain a healthier balance sheet. There may, in fact, be a bidding war, causing a steep increase in driver compensation for the best and safest drivers.
A change in hours-of-service may cause a change in distribution networks and locations. I also believe and have been suggesting all year that any hours-of-service change may well jeopardize backhaul programs for all carriage but would be devastating for dedicated/private fleets. Lastly, negligent hiring lawsuits against shippers are on the rise as a result of shipper ignorance or failure to not properly qualifying their carrier base. Companies like QualifiedCarriers.com can help shippers protect themselves from predatory trial lawyers.
WB: Rates are already on the rise and will continue throughout 2011, as carriers return to profitability. Shippers will enter into and respect longer-term contracts in an attempt to lock in rate levels and precious capacity. Legislative issues will be a focus of supply chain departments and the potential effects will be analyzed together by the shipper and carrier representatives. Look for a significant growth in the 3PL arena as well, as uncertainty about HOS and fuel related legislation will prompt shippers to consider alternatives to brick and mortar expansion.
LM: What is on your wish list of changes that you’d like to see happen in 2011?
WB: I would like to see a final HOS bill and have it enacted quickly. Wouldn’t it be nice if the carrier/shipper community got together and agreed on a fair compensation package for the drivers and agreed to share the costs evenly? So much relies on them and the pay and benefits are so poor. It’s no wonder why the driver shortage has lasted 15 years.
JG: I’m going to wish for an all-encompassing transportation bill that creates a safe, effective, and efficient highway system that facilitates the competitive growth of U.S. commerce while effectively eliminating the barriers that inhibit the fluid movement of intermodal freight movement on railroads, barge, and steamships.
LM: What is some “Sage Advice” for shippers as they enter the 2011?
JG: Supply Chains, 3PLs, and 4PLs: Your job is strategic not transactional. You need to understand the elements that your carriers and customers value and measure your effectiveness in meeting and exceeding their expectations and then work aggressively to make sure your customers and carriers can’t afford to do business without you tomorrow.
WB: The days of logistics departments being a “necessary evil” are over and done. You are, and always have been, a strategic weapon for your company. Get involved in the long-range planning and be a voice to be heard. 3PLs: teach your account executives the benefits of the products and services that they are offering. Immerse them in not only what you do, but how you act.
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