June 2008 | News | Trends

Trends

No tags available

In light of the recent and sudden news that New Jersey-based LTL trucking company Jevic Transportation terminated operations and filed for Chapter 11 bankruptcy, motor freight carriers will likely find the road noticeably more barren this summer.

If the past is any indicator, the industry will be beset by further insolvency as trucking companies continue to struggle with soaring fuel prices, slack freight demand, and general economic malaise.

"Many motor carriers have little ability to absorb rapid changes in fuel costs. Historically, trucking firm bankruptcies have been closely correlated with fuel price increases," reports a 2003 study, Evaluation of U.S. Commercial Motor Carrier Industry Challenges and Opportunities, by Fairfax, Va.-based ICF Consulting.

Jevic's demise comes as diesel prices rise higher than $4 a gallon, with prices in California climbing perilously close to the $5 threshold.

Because capacity is flush—a consequence of conservative consumer spending and drops in import trade—smaller carriers without the benefit of scale are finding it difficult to pass along fuel surcharges to shippers who are looking around corners for less expensive alternatives.

What is even more worrying for the industry is the fact that large carriers such as FedEx are beginning to feel the pinch as well. At the beginning of May, the carrier scaled back its fourth-quarter earnings predictions.

"While we have dynamic fuel surcharges in place, they cannot keep pace in the short term with rapidly rising fuel prices," explains Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer.

Rapidly rising diesel prices are by far a bigger problem for the motor carrier industry than freight volumes, largely because fuel volatility directly impacts consumer confidence, reports American Trucking Associations (ATA) Chief Economist Bob Costello. "Surging fuel prices are weighing heavily on consumers," he says.

Because trucks haul virtually all consumer goods at some point in the supply chain, the industry will be significantly impacted both directly through higher diesel prices and indirectly as consumers pay more for gas and have less money to spend on truck-transported goods.

The ATA and its member carriers recently ramped up efforts to lobby Congress for additional support in reducing fuel consumption and costs.

The dramatic increase in the price of diesel, combined with a downturn in the economy and softening demand for freight transportation, has many trucking companies struggling to survive, testified ATA State Vice President Mike Card before the Subcommittee on Highways and Transit of the House Transportation and Infrastructure Committee.

Card, who is also president of Combined Transport, a Central Point, Ore., carrier, asked Congress to create incentives and expedite the introduction of auxiliary power units that reduce main engine idling, establish a 65-mile-per-hour national speed limit, and offer additional support to the Environmental Protection Agency's SmartWay program.

"Our industry can't simply absorb this rapid increase in fuel costs," he said. "We must pass some of these costs through to our customers, which ultimately translates into higher prices on store shelves."

The trucking industry overall is on pace to spend $141.5 billion on fuel in 2008, $29 billion more than last year.

Gloomy Outlook Has STBs Looking Inside

As threats of a recession bear down on the transportation industry, only one-third of small transportation businesses (STB) responding to a fourth-quarter poll by the Small Business Research Board (SBRB), Northfield, Ill., plan to expand during the next 12 to 24 months, a six-percent drop from the third quarter of 2007.

Participants in the study, co-sponsored by International Profit Associates (IPA), indicate they are re-calibrating their operating plans to contend with customer issues and human resources as opposed to investing in facilities and technologies.

In terms of human resources investment, small transportation businesses prefer improving staff training, enhancing employee incentive programs, and adding staff rather than investing in existing or new automation and technology, according to the SBRB poll.

WMS Scales New Heights

Global penetration, interest from new users, and more vertical-specific applications are raising the importance, and consequently, investment stakes in warehouse management technologies.

The warehouse management systems (WMS) market continues to expand at an unprecedented pace, with a compounded annual growth rate over the next five years projected at 7.5 percent, according to a new ARC Advisory Group study. The market was $1.2 billion in 2007 and is forecasted to surpass $1.8 billion by 2012.

"This growth has been driven by a technology refresh among companies with older systems, and the emergence of WMS in new verticals and parts of the world that have not historically bought this solution," observes Steve Banker, ARC's service director for supply chain management and author of Warehouse Management System Worldwide Outlook.

Emerging industries are combining WMS with traceability and proof of delivery to create a solution that spans from the point of storage to the point of use. In effect, they are creating a form of extended WMS, Banker reports.

Where's the Beef?

Last year's rash of product recalls and resulting media coverage generated buzz about the need for more government oversight and/or industry-wide standards to prevent and manage future supply chain mishaps.

But now that Congress is actually acting on the call for reform, legislative efforts have gone largely unnoticed by many within the consumer product goods (CPG) industry, according to a recent survey by Waukesha, Wisc.-based IT company, RedPrairie.

Earlier this year, the U.S. Senate and House passed legislation to beef up the Consumer Product Safety Commission, toughen penalties for violating safety laws, ban lead in children's products, and require the government to maintain an online database of product hazard complaints.

Despite this activity, 56 percent of respondents to RedPrairie's poll of retailers, grocers, CPG companies, food and beverage manufacturers, and third-party logistics providers report they are unaware of pending legislation in Congress.

Furthermore, the survey indicates a lack of consensus as to whether industry-wide standards or legislation would prove more effective. For example, while 79 percent of respondents indicate that recall legislation is needed, 75 percent believe that industry standards can be more effective in managing recalls than legislation.

Digital Editions

September 2014 Cover

Full Digital Issue

September 2014

(140 pages • 21.99 MB PDF)

Freight Audit and Payment Services: Stacking Up Savings Cover

Digital Edition

Freight Audit and Payment Services: Stacking Up Savings

(21 pages • 2.4 MB PDF)

2014 Logistics Planner Cover

Digital Edition

2014 Logistics Planner

(162 pages • 23.2 MB PDF)

Top 100 Truckers Cover

Digital Edition

Top 100 Truckers

(17 pages • 0.99 MB PDF)

WMS Buyer's Guide Cover

Digital Edition

WMS Buyer's Guide

(7 pages • 1.93 MB PDF)

Thought Leaders Cover

Digital Edition

Thought Leaders

(4 pages • 0.21 MB PDF)