CSCMP conference raises important concerns about the economy

The recently-concluded annual conference of the Council of Supply Chain Management Professionals in San Diego provided a great deal of insight on the macro- and micro-economic issues impacting the supply chain.

The outook appears mixed, said Thomas K. Sanderson, Transplace president and CEO, in an exclusive interview.

LM: Your recent blogs on the retail and housing markets seem to suggest that a recovery is still in the works. When do you expect a solid rebound?
Sanderson: I am not an economist; I just read their reports and study their data. Having said that, I don’t see any reason to be optimistic that the freight economy will rebound before mid-2011. What would cause people to have the confidence to ramp up housing purchases, buy new cars, and spend more in general in the retail sector when unemployment is predicted to remain high through 2011?

LM: Any forecast for the transportation industry?
Sanderson: Despite the weak freight market, capacity will continue to tighten in 2011, perhaps significantly. CSA 2010 will likely remove 5-10 percent of the drivers from the marketplace. If driving hours are cut from 11 to 10, there will be a small reduction in effective capacity. A broad EOBR mandate coupled with CSA 2010 could take additional capacity off the road. New class 8 tractor sales have been weak for four straight years, and carriers are not rushing out to buy the 2010 engines. The market seemed to be reaching equilibrium in Q2, with the power possibly starting to swing to the carriers, but that has softened throughout Q3. If the economy continues on its current trend, truckload capacity will be tight by mid-2011. If the economy picks up at all, truckload capacity will be tight before then. Intermodal providers have been more aggressive than TL carriers in seeking rate hikes, but that is driven more by the rail carriers than the IMCs. TL competition will keep intermodal in check until TL capacity gets very tight, and then I would expect intermodal providers to be very opportunistic on price increases, again driven by the railroads. The LTL segment probably has enough capacity to avoid more than nominal price increases for contract customers.

LM: What was the main takeaway for you at the CSCMP conference?
Sanderson: Manufacturers and retailers remain under intense pressure to reduce costs and simultaneously improve service. They still don’t have the budgets to buy new technology or hire additional staff. That makes it a very tough environment for shippers, but it confirms my belief that 3PL’s who have embraced the software-as-a-service model and have strong process improvement cultures such as strong Lean Six Sigma capabilities, are very well positioned for growth. I also heard a lot of positive interest in growth in US/Mexico trade.