Logistics Management

Dave Schneider

Welcome Back
February 3, 2008

Welcome Back!

Sorry that the blog was missing for the past few weeks. There were some big changes going on that created the need to be “absent” until things got settled. It is good to be back.

If you did not read my updated bio, let me fill you in on the changes. After 25+ years of working in corporate life I made the big step and started my own business.   I am excited about the change, which had been underway since last fall. Starting my own consulting company is a means to expand the scope of work, to work with a broader group of companies, and in some ways to have a way to make a greater contribution to the supply chain profession.

Part of what I did the past few weeks was reach out and contact many of the people that I have had the pleasure to work with over the past 25 years. Some of those folks work at the carriers. If you read Wayne Bourne’s column in the January edition of Logistics Management you know that the pricing pendulum is swinging.

One of the questions that I asked each of the carriers was what they saw as the outlook, capacity and demand. Each carrier indicated that while the pendulum is on the shipper side of the line, it may have already changed direction.

The carriers are retiring tractors, and making money doing so. There is a huge demand for “low mileage” American built tractors in the former communist countries of Russia, Poland, Romania, Ukraine, and potentially in China. The tractor that the truckload carriers added to the fleets 3 years ago to meet the growing demand in 2004 and 2005 are now coming to the end of service life where the carriers turn the tractors. These units are in good condition and are in demand in Eastern Europe. The price being paid FOB USA is higher than the remaining book value of the units. Ro-Ro ships to Europe are hauling quite a few American diesel trucks.

And the major carriers are not replacing one for one. Nobody really tipped their hats, but I suspect that the replacement ratio is as high as one for each two being retired at some carriers. If the fleets are being trimmed, capacity is being trimmed.

Now consider the small and independent carriers. The last few months not a day went by without a telephone call from some carrier that I had never heard of before. “How many tractors in your fleet?” While not a scientific survey over half of the calls were carriers with less than 200 tractors. The small regional carriers are scratching for freight. How soon before some of these carriers are pulling the plug and selling the equipment?

How fast the pricing pendulum swings over to the carrier side is going to depend on the slope of the curves. If the capacity curve is not as steep as the dropping demand curve then there is time for shippers to work out with their existing carriers to secure decent rates, and perhaps pick up a thankful new carrier partner. But if the dropping capacity curve ends up being steeper than the  demand curve, of the economy has a quick rebound, well, I would not want to be in that swinging arc.

What do you think?

Posted by Dave Schneider on February 3, 2008 | Comments (2)