The Shipper Empire Strikes Back
Sitting in the cab of a Class-8 truck provides a great real-time view of the country's landscape, as we saw in the American Trucking Associations' (ATA) recent ad campaign.
Sitting across the table from a present or prospective shipper, however, may present the best view of the future for both carriers and shippers.
Today, transportation buyers and sellers are cautiously watching multiple indicators, trying to interpret how market metrics might impact shipping prices.
Some point to a recent positive swing of nearly four points in the Institute for Supply Management Manufacturing Index as a sign of better times to come for trucking.
Yet, a negative 580 basis point drop in consumer confidence, according to the Conference Board, suggests rough roads ahead for trucking and 3PL providers.
While history will not provide a guaranteed view of our economic future, it does provide necessary perspective.
The beginning of this decade was largely defined by the Sept. 11 terrorist attacks. Beyond great personal tragedies, the general economy was impacted by the level of shock and surprise that engulfed the country.
Yet, the market recalibrated following the attacks, and much like the overall economy, 3PL providers enjoyed significant growth.
Until mid-2006, one main challenge shippers faced was finding substantial truckload capacity, while worrying about potential cost and quality concerns. Across town, trucking companies were focusing on expansion of overall capacity, driver supply, and other issues to meet increasing customer demand.
As every shipper vividly remembers, the intersection of tight supply, high demand, and wildly fluctuating diesel prices drove shipping costs up.
Trucking Demand Drops
More recently, this trend has decidedly reversed. Housing starts and consumer confidence have been down, and new car sales charts will look like a dead man's EKG until at least 2008.
Diesel costs have risen significantly, weather has been a rollercoaster ride, and some view a presidential election without an incumbent as another uncertainty.
These conditions have collectively reduced demand for a wide range of commodities and finished goods and, by extension, for trucking.
No question about it, shippers are increasingly seeking to roll back transportation price increases of the past several years. That shouldn't be a surprise, and is somewhat understandable—"somewhat" being the key word.
If one accepts the overall cyclical nature of the U.S. economy, however, and that the national population is not declining, then one fact remains—demand for trucking and other 3PL services will increase over time.
The ATA's prediction of 111,000 net heavy-duty truck driver vacancies just seven years from now—requiring 435,000 driver hires to cover the turnover factor—may be low.
Further, ATA Chief Economist Bob Costello predicts a 31-percent increase in freight traffic by 2017, despite the driver shortage, increased traffic congestion, and stricter Hours-of-Service (HOS) regulation.
The heavy-duty driver shortage will begin returning toward summer 2006 levels by the end of this year, and the situation will get worse and never—let me reemphasize—never get better in our lifetime.
You may think I also believe that tighter capacity of this nature is good for truckers because it drives prices up. Prices probably will rise, to some degree. Yet, I believe what's good for the shipper is what's best for trucking.
Political pundit James Carville made a brilliant point during President Clinton's first campaign when he rallied his team around the mantra, "It's the economy, stupid."
Today's economy is causing the shipper empire to strike back. C-levels are heavily pressuring their logistics managers to exact a pound of flesh from the trucking industry.
While not surprising, it may not be the way to optimize one's position in 2008 and beyond. You may not believe that some shippers are trading part or all of their short-term rate concessions for capacity commitments later on, but they are.
There are no silver bullets, but from my perspective, I'll settle for "sucking less" than what we saw in early 2006.
Here's what you have to believe to think that capacity is not going to tighten soon and forever: that there's a fundamental weakness in the U.S. economy; that we'll be able to clone and attitudinally reprogram the white male 35- to 44-year-old demographic of today's heavy-duty drivers; that most of the "mossbacks" who see the romance of the road can be convinced to not retire; and that the government will add massive highway capacity and ease emission and HOS regulations.
Anyone who believes all of that should seek immediate medical attention.
It's time to put aside uncontrollable macro economics and have trucking companies and shippers collaborate on business and financial relationships that extend beyond the next hill.
Committed relationships between shippers and transportation providers can facilitate movement from the generic, commoditized low-value world to the collaborative, differentiated, and value-added shipping universe.
Customers want their goods dependably and economically transported, regardless of 3PL supply-and-demand variables. Logistics providers want predictable loads and projectable revenue. Taking the longer view creates more shared wins.
This approach reduces the potential for disruptions that could result when shippers lose preferential positions in the transportation supply by making one or more tactical moves to save money, only to be in a "first out, last in" situation when supply and demand curves resync.
For truckers and 3PLs, more strategic customer relationships mean increased focus on innovative solutions that bring better efficiency and effectiveness to the table.
While the Rebel Alliance and the Galactic Empire may make for exciting entertainment, the trucking and 3PL space is no place for battle.