Freight Management Services
|
900 Dudley Avenue
Cherry Hill, NJ 08002
Phone: (856) 317-9600
team@tuckerco.com
|
Opinion
By, Jeff Tucker, CEO Tucker Company
January 16, 2006
Capacity in 2006 and Beyond
Thirty months into our nation’s trucking capacity crunch, I am confident in two theories, both of which are proving themselves true. Firstly, the “core carrier” program methodology shippers adopted in the 1990s is dead. Secondly, there still remains reliable capacity in the marketplace for shippers, but it will only be tapped by those shippers who have accepted the first theory. There is hope for shippers who want to survive in 2006, but it will require an immediate resolution on their part to meaningfully retool their transportation purchasing practices.
From the late 1980s to the summer of 2003, domestic transportation was a “no-brainer” for shippers. Since then, supply chains have been disrupted or threatened by trucking equipment shortages. Reviewing the factors behind this permanent shift, one can begin to understand the larger economic forces at work and how they impact our industry. Prospects for reliable capacity returning over the next decade are virtually nonexistent.
The not so big secret anymore is that there is still a relatively untapped reserve of reliable truck capacity in today’s marketplace. So why do so many shippers find it out of reach, while some logistics managers have discovered it, are busy re-securing their battered supply chains and are becoming heroes? They figured it out. The new gold standard for corporate freight management involves augmenting outdated “core” programs by adding a professional broker or third party logistics firm into their mix as a significant partner. The key phrase here is “significant partner,” and that will be defined later. A shipper who does not make significant and tactful use of good 3PLs within their mix of freight providers, is simply not in today’s game.
Much of the history behind the transportation market’s recent evolution is well documented, but much of the corporate shipper’s acute pain should be blamed directly on the widely used core carrier methodology for managing carriers. For years, shippers cut back their number of carrier vendors from hundreds to one or two dozen. The vast majority of shippers neglected, or simply refused to include a broker as a supplier in their core carrier programs. Firms cut logistics staffs down to a handful of people or less, and slashed departmental budgets. Rates dropped so low that most felt they could go no lower. Freight was easy.
In a buyer’s market everything looks easy--to the buyer. Behind this scene, core carrier programs accelerated the growth of the largest of these truckload carriers, who owe much of their growth to these programs. Shippers were compelled to choose only the largest carriers with national coverage if they were to really reduce their number of carriers. As a result of that movement small, medium sized, niche and specialty carriers were increasingly shut out of shippers, and often closed their doors. It was during this time that the freight brokerage industry exploded with growth by tapping into these truckers, and providing them with needed access to freight.
Timing of other big economic forces accelerated today’s capacity crisis. Nearly 11,000 more truckers were sweated out of the marketplace and went out of business between 2001 and 2002. Bush’s tax credit hit in 2003, pushing our economy’s GDP from the doldrums to a supercharged 8.2% growth rate overnight. More than one large shipper called 2003 the worst year for capacity in history. So thinned out was the trucking industry of carriers, and so lulled to sleep were shippers by years of abundant equipment, many in the industry were simply stunned. Of course, since nearly all shippers relied heavily on the same large carriers as the backbones of their programs, when the economy heated up and capacity appeared to drop, most of them got hurt.
The U. S. manufacturing and retailing markets are undergoing substantial, permanent changes with imports from China and the Far East steadily increasing with no end in sight. And, while railroads used to be able to handle the excess trucking demand, their own focuses, resources, and strengths are changing to meet their own rapidly changing demands.
Making matters worse, at the peak of the most terrible capacity drain in recent history the Federal Motor Carrier Safety Administration (FMCSA) issued their new hours of service (HOS) effective January 2004. The new HOS were predicted to cause a 6% to 18% productivity loss overnight. The impact was felt by everyone in industry. Furthermore, new hazardous materials regulations have accelerated a previously existing erosion of drivers and carriers from hauling haz-mat freight. Tucker forecasts haz-mat shipping will resemble a highly specialized and expensive niche similar to waste hauling if Congress does not act soon. Hurricanes Katrina and Rita exacerbated the shortage that already existed, just as the holiday push season began. With The Wall Street Journal reporting on January 3, 2006 that the U. S. Economy is expected to grow at about 3.5% in 2006, how are we going to move the freight?
Hold on, it gets worse. In May 2005, the American Trucking Association released its study, “The U.S. Truck Driver Shortage: Analysis and Forecasts.” It is an absorbing and alarming study to any transportation professional. It estimates today’s driver shortage to be about 22,000 or 1.5% of the total driver force. By 2014 it predicts “the gross number of new truck drivers required is 448,000” representing an increase of about 45,000 driver per year! Behind that shortage is today’s largest and aging segment of driver population leaving the industry with much smaller groups behind it. The report shows that in 2001 for the first time, construction wages surpassed truck driver pay. Meanwhile, economic forecasts for the U. S. predict national freight volumes to double by around 2020. We have problems. Someone better tell the Emperor(s) (Congress, Railroads, Truck and Shipper Lobbies) he (they) ain’t wearing a stitch!
On a positive note, since the 1970s through these crises and through today, brokers and freight managing 3PLs were steadily and quietly growing their carrier bases, their capabilities, technologies, revenues, and their market share. In stark contrast to the core carrier methodology of corporate shippers, the 3PLs were constantly adding new carriers, capacity and filling niches quantifiably measuring carrier performance so that service continually improves for their customers. They collectively spent billions in freight management software built to manage freight for hundreds of customers using thousands of carriers, while auditing and administering to contract demands such as service and insurance requirements.
A lot has been made of “collaboration” and “partnershipping.” When you break it down, freight managing 3PLs are the truest definition and the best example of collaboration and partnershipping. The careful assessment of carrier and shipper needs in real time and in the strategic sense is precisely what these 3PLs do so well. My father Bill Tucker once stated, “the greatest assets of a carrier—his trucks; are also the carrier’s greatest liability—there are only so many of them.” That statement has never been truer. In no way do I suggest that larger shippers should completely outsource to a 3PL or that they should not have direct relations with select carriers. In fact, I do not recommend those tactics at all. Trucks move freight. But reliable access to the right trucks for the right jobs, ALL the time is the end game.
Proper and effective utilization of a freight managing 3PL by a shipper is paramount. Shippers must follow two critical elements. Careful selection is the first step. Far too often shippers will choose a 3PL based solely on its name, size, marketing materials or on a great sales pitch. Never before has it mattered as much as today that your 3PL partner is proficient in the business and the needs you are seeking. The last thing any shipper needs is a 3PL with a well known brand name in like services, who is struggling to learn the freight managing 3PL business and trying to keep up with staffing, service and IT needs. All the cash in China won’t help that scenario. The only thing any 3PL should need to learn is your specific business needs. Take the time to review several of the 3PL’s references, check the years in business, and have your credit folks run a credit check.
The second step is absolutely critical and is perhaps the toughest for shippers married to the core carrier methodology. Shippers must place the 3PL on an even footing with its closest carrier partners. Shippers who will get real capacity on their required timetables in 2006 and beyond, will put their 3PL on an even footing with their most valued carrier, and share the volume regardless of season or short lapses in equipment demand. This may necessitate shippers to eliminate one or more incumbent carriers from their programs.
Why? Shippers will remain in competition with each other for reliable trucking. Like carriers, 3PLs need steady volume all year for the many niche and small and medium sized carriers they use. Shippers will need the full attention and focus of both their 3PL and its staff, as well as the 3PL’s carriers at critical times. If the 3PL and its carriers view the shipper as an important customer, honing their services to the shipper and its consignees, the shipper can effectively weather any capacity shortage, flexing up and down instantly. Shippers who only use a 3PL as a last resort/safety net will pay a steep price and may not get that last truck.
Long overlooked by the largest shippers, professional brokers and third party logistics companies (3PLs) are providing waves of reliable equipment to shippers, from the biggest to the smallest. They are armed with experienced staff, expertise and an expanding arsenal of new technologies to manage customers’ freight. 3PL partnerships are being perfected by some of the most flexible and forward thinking shippers in the country.
If you are a shipper who is looking to add real capacity, adopting this practice should provide a much needed temporary one to three year patch for most shippers and will keep their odds highest for having access to trucks. If you are a shipper who feels you haven’t been negatively impacted by capacity problems, you’re as lucky as you are good and your day is coming soon.
Until the industry pushes for increasing gross vehicle weights from 80,000 to 97,000 with an additional axle, expands use of multiple trailer vehicles, reviews the minimum age a driver can get his/her CDL, stop backsliding on HOS rules, and increase driver pay, shippers must learn some of these new skills necessary to effectively use all of the transportation infrastructure.
|
|
