Are you on the precipice?

I’ve traditionally chosen to stay clear of predictions and forecasts in our December Buyers Guide issue, but I found it too hard to pass up this year considering that many shippers may now find themselves standing at the edge of a precipice. Why do I sound so dire during this otherwise festive time of year?

As John Schulz and Jeff Berman report in our news section, and as John Gentle and Wayne Bourne suggest in their joint Sage Advice column (pages 112-113), the outlook could indeed become very grim for those shippers who did not take the extra steps over the past two years to truly understand the position in which their motor carriers found themselves.

As we’ve been documenting over the past 24 months on logisticsmgmt.com and in our print pages, motor carriers had been caught in an operations maelstrom as volumes dropped and predatory shippers did their best to squeeze rates until it literally hurt. “Rates were drained of any meager margins as many shippers took advantage of the capacity flip,” says Bourne. “It was definitely a short-term gain.”

During that period, Bourne and Gentle used our pages—and their combined 70 years of experience—to spread the gospel of “partnership,” urging shippers to keep carrier viability top of mind in any rate negotiation. What good is a carrier partner to you, they asked, if he can’t afford to stay in business?

Fast-forward to December 2010 and we find an ailing economy on the mend. And with that positive news rides the specter of a capacity crunch driven by a growing number of issues, including the challenge of putting equipment back on the road—and quickly—as well as a looming driver shortage that could be exacerbated depending on the outcome of unresolved hours-of-service and Comprehensive Safety Analysis (CSA 2010) regulations.

In fact, Schulz reports that in 2004, the peak of the last great time in trucking, the industry found itself about 150,000 drivers short. Next year, there could be a shortage of as many as 100,000 drivers or more. But analysts warn that any changes in hours-of-service or the new CSA 2010 could push that number up to 300,000 by 2012.

On the equipment side, carrier executives are sending out a not-so-subtle warning this holiday season. “It’s hard for carriers to justify the rate of return when considering adding capacity right now,” US Xpress President Pat Quinn told LM during a conversation at the NITL annual meeting. “If we add a tractor and three trailers in 2006 it was about $130,000. If we add that today it is $195,000. Who is paying me that differential to do it? Nobody. As a consequence, until that return pays itself off nobody is going to do it.”

Shippers now need to look in the mirror and ask if they’ve heeded the “Sage Advice” of Bourne and Gentle. Have you taken the time to sit down with your motor carriers to understand their situation? Has this time forced you to understand that the shipper/carrier relationship should be strategic and not simply transactional?

And while many companies have taken a more productive, long-term approach in their carrier negotiations, others have stuck with an opportunistic, short-term approach that has only helped to winnow down the list of available carriers. It is the latter who may now find themselves on the edge of the precipice.