Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

There is Some Light in the Tunnel

Freight industry and the economy

The Council of Supply Chain Management Professionals (CSCMP) published the 22nd State of Logistics Report last month, and it offers some sober reading. But it also contains a message we always try to affirm in this blog: that the freight industry has the creativity and tools to lighten the economic gloom. 

First, let’s look at the bad news. Although 2010 was a marked improvement on the 2009 it was not exactly a banner year. “Volumes firmed up early in the year, but dropped off in the second half. Demand for capacity began to equalize with available capacity in many sectors, but rates continued to be constrained. Inventories began to climb again and retailers pulled back on their ordering, because spending did not expand as expected,” the report states. It goes on to describe how the recovery ran out of steam in the second half of 2010.

Business logistics in the US costs rose 10.4% last year to $1.2 trillion, following declines in the previous two years. “Trucking, the largest component of the transportation sector, remains the hardest hit mode, struggling to cover costs, especially skyrocketing fuel costs,” says the report.  This mode also experienced the largest decline in employee numbers in the industry, suffering a 13.4% cut in its workforce over the last four years. More than 3,000 trucking firms have declared bankruptcy over the last three years, according to the CSCMP.

Looking ahead to 2011, the report’s somber assessment is that the US economy appears to be stalling. Capacity issues are becoming more widespread in trucking, and equipment replacement levels are inadequate. “Motor carriers are being set up for the perfect storm … capacity is still leaving the market; drivers are difficult to find and keep, the truck order backlog is growing, operating costs are rising while revenues are steady, and new regulations are on the way that will reduce the productivity of the drivers they do have. Couple this with rising freight volumes and the trucking sector could find itself unable to meet demand,” says the report.

Not a pretty picture. But the report’s summary strikes a more optimistic note. Although it is anyone’s guess as to whether the freight industry will be in a better or worse shape at the end of 2011, “my money is on the innovators in the logistics industry who are navigating through the recovery,” says Rosalyn Wilson, who presented the report when it was launched this June.  The sentiment is reflected is the report’s title: “Navigating Through the Recovery.”

We could not agree more. Leading edge transportation management systems provide business intelligence tools and analytical capabilities that were not available less than a decade ago. Analysts and managers are becoming more skilled in using these tools to identify savings and develop imaginative strategies for improving network efficiency.

Moreover, in this challenging business climate we see a much greater willingness to consider new alternatives and apply novel solutions. Shippers are looking at freight systems more holistically that they were just a few years ago, particularly when it comes to benchmarking. The dynamics of uncertain markets are spotlighting big picture issues as never before.

Shippers are also raising the bar for service providers. For example, it used to be common practice to vet the capabilities of a system during the sales process. This is still the case, but shippers also expect to see a hard savings plan early in the sales cycle. Without a clear ROI there is simply no deal.

The fundamentals have not changed. We still maintain that the starting point for systematic gains in network performance is robust technology and core processes that provide a stable base for improvement. With these basics in place business shippers can develop specific plans for capturing efficiencies in the short and long terms.

There is no question that the nation faces some grave challenges, and the lack of progress on the economic front is worrisome. But the freight industry should not lose sight of the advances made in transportation management over the last decade. If you doubt this then take a look at our posts over the last year. We have covered numerous developments ranging from better ways to procure truckload capacity to applying a new generation of analytical tools.

These achievements, coupled with the ingenuity that has enabled freight professionals to overcome past crises, can help us to find a way out of our current predicament.