TransComp panelists offer insight on market, conditions, rates, future outlook
Much of the first half of 2010 centered on inventory restocking, which led to improved freight volumes, shortages of equipment and higher rates, especially when compared to a trying 2009. Since that time, things have changed with volumes relatively flat since mid-year and the theme of ‘cautious optimism’ prevailing when it comes to the long- and short-term economic outlook. These sentiments were echoed to a large degree at the opening session of this week’s TransComp expo, hosted by the National Industrial Transportation League, the Intermodal Association of North America, and the Transportation Intermediaries Association.
Events in the NewsPort of Long Beach looking forward to Lunar New Year Short-line railroad tax credit is not permanent, but rail stakeholders hoping that changes CN-NS interline service is seeing solid early returns Fate of NAFTA remains a dicey situation, rail stakeholders say 2017 NASSTRAC Shipper of the Year: Mallinckrodt; Mastering and managing complexity More Events News
Events ResourceImprove OTIF Performance with Real-Time Visibility for Shippers Due to rising consumer demand, retailers are imposing stricter on-time in full (OTIF) standards on their suppliers and carriers.
Much of the first half of 2010 centered on inventory restocking, which led to improved freight volumes, shortages of equipment and higher rates, especially when compared to a trying 2009. Since that time, things have changed with volumes relatively flat since mid-year and the theme of ‘cautious optimism’ prevailing when it comes to the long- and short-term economic outlook.
These sentiments were echoed to a large degree at the opening session of this week’s TransComp expo, hosted by the National Industrial Transportation League, the Intermodal Association of North America, and the Transportation Intermediaries Association.
The session’s panelists included: Matt Rose, Chairman, President, and CEO, BNSF Railway Company; Michael White, President North America, Maersk Line; and Chris Lofgren, President and CEO, Schneider National Inc.
One of the initial questions presented to the C-Level trio pertained to how they would describe their business outlook for 2011, with the options being very optimistic, somewhat optimistic, neutral, somewhat pessimistic, or very pessimistic.
“I don’t thing things will get worse,” said Schneider’s Lofgren, “but I think things are more likely to get better slowly.
BNSF’s Rose noted that anything compared to 2009 is a better scenario, but he added that things are still a long ways off from where the peak was. And assuming GDP growth in the 3 percent range comes to fruition, Rose said gradual overall improvement could be likely.
“Nobody is talking about double-digit growth for next year, but nobody is talking about a double-dip recession either,” said Maersk’s White. “It will depend on how well volumes come back for the Chinese New Year as a tailwind, but a lot remains to be seen.”
With a significant amount of inventory restocking taking place in 2010, a lot of what was happening in terms of freight economy growth did not mirror what was happening in the actual economy.
When asked if 2011 conditions will more accurately or consistently reflect what is happening in the underlying economy, Rose explained that they won’t, because there will be another inventory de-stocking.
“You can’t run freight volumes in excess of consumer spending and GDP like we are right now for a prolonged period of time,” he said. “What we need is consistent GDP growth.
Another theme of the session—and the overall conference as well—had to do with future trucking capacity, due in large part to CSA 2010 and expected changes in Hours-of-Service mandates. It is widely believed in the marketplace that these issues will result in higher rates and influence contract negotiations.
“Trucking prices will rise when capacity is less than demand, and it will go the other way as we saw last year,” said Lofgren. “With CSA 2010, ten percent of capacity could come out, because there is no doubt the industry has drivers that have clearly moved from company to company with driving records that are less than stellar. If you take ten percent out of the market even when there is as much excess capacity as there is, there will be an effect. It is a question of when and how quickly it will happen.”
Lofgren added that the impact will likely be noticeable during the first half of the year, with the underlying question being what the exact enforcement process will be.
Another topic of discussion focused on the current level of investment in transportation infrastructure.
Rose explained that the recession in many ways masked the amount which is truly needed at a time when current surface transportation funding is being strung along by a series of continuing resolutions from Congress.
“The recession we have come out of was sort of a head fake for a lot of big network businesses,” said Rose. “We are grossly underfunding our highway infrastructure, yet when we had that type of recession that we did everyone thinks things are OK. Trucks and railcars are available and freight can move along the highway with limited congestion. But it won’t take long until we are right back to 2006…which was about chronic capacity shortages in the trucking and railroad industry, and it was about congestion we were seeing at the ports. We are going to be right back there if we don’t have a coherent transportation plan going forward.”
White concurred with Rose in that while volumes may have been down, it does not at all negate the existing problems when it comes to infrastructure.
“Strong infrastructure and asset utilization is just as critical to the ocean carriers as it is to the terminal operators, and rail networks,” said White.
The issue of rates was also discussed during the session, with a question presented to the audience on which sector would see the most increased upward pricing pressure in 2011. Leading the way was truckload at 44 percent, with LTL and rail rounding out the top three at 15 and 14 percent, respectively.
Schneider’s Lofgren said that upward pricing in 2011 will be primarily due to CSA kicking in, as it will result in a shorter supply of capacity.
“It won’t [be solved] by going out and buying more trucks,” he explained. “This will be about finding drivers, which has always been a challenge in the industry. There is a new reality now as CSA scores get published and are available to shippers…the thing that is starting to happen is that it is creating a situation where people are making selections on carriers publicly on how they perform.”
On the ocean side, White said that there is a propensity for some slight increases in 2011. In 2010, White said there was a slight correction for rates, which was needed after a “near total collapse in 2009.”
This was needed he said, due to the high number of vessels that were laid up due to a lack of demand in 2009, because the actual rates got to a point where the remuneration did not even cover variable costs.
“In 2011, you can expect bunker fuel surcharges to continue to float, and it is more than likely that peak season surcharges will continue, and carriers will need to better match capacity to expected demand, which means you will see more things like extra loaders, which we saw more this year than ever before,” said White.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
The Future of Retail Distribution Navigating the Reverse Supply Chain for Connected Devices View More From this Issue