Is it really all about volume?
Noël Perry, Founder and Principal of Transportation Economics gave a keynote presentation recently at the IGNITE Supply Chain Conference in Philadelphia. His presentation, “Transportation: A Year on the Edge,” focused on the underlying fundamentals of transport demand, operations and competition. In short, Noël listed five old rules of transportation that no longer apply while offering up the new rules replacing them. Supply chains will be dramatically impacted.
This blog series covers each rule change individually and offers up strategies to navigate a successful transition. Be sure to subscribe on the blog stream to receive real-time notifications of each new post.
Discussed in the first of this series of posts, rule change #1 proposed that we no longer live in an era of continuous improvement in transportation. Transportation today is becoming slower, more fragile and less reliable than it used to be.
The Second Rule Change
Old – It’s all about volume
New – It’s all about profitability
Decreasing oil prices contributed to a reduced cost of transportation and helped fuel a 20 percent increase in e-commerce orders over the last holiday season. US consumers with more disposable income chose to do more of their shopping online, putting a strain on trucking capacity. Historically, such an increase in volume would be viewed as positive, however, there are many other factors causing added capacity that worry transportation executives as they strive to remain lucrative and profitable.
Other modes are struggling as well, but for different reasons - mostly because of lack of volume. Rail won’t get back to previous peak levels until 2030; intermodal will flatten out.
Big transport firms aren’t growing either. Yet freight volumes are predicted to increase by 29 percent over the next decade.
The trucking industry has struggled with a shortage of truck drivers. The past few years the shortage has been more evident due to the growth in freight volume, large number of drivers retiring and an increase in industry regulations. The shortage is exacerbated because fewer students and young people are pursuing a career in truck driving due to long hours away from home and perceived lower pay than other careers. In 2015, the trucking industry was short 48,000 truckers and this number will only get larger. The American Trucking Association puts the number of drivers needed to hire at an average of 89,000 per year.
Due to lack of capacity, shippers aren’t getting freight discounts like they used to, even those that spend millions on freight annually. Shippers are also placing an importance on carriers with high transit time consistency, more flexibility, and better available capacity.
To run a more profitable transportation operation, shippers need to find carriers that will meet their needs and offer better capacity. Shippers need to provide visibility into their supply chain, sharing forecasts with carriers so that the truckers will know when capacity is needed.
To find capacity, businesses need to have more than just first-order connectivity, or one-to-one. Instead they need and want one-to-many connectivity, such as what you get with a supply chain operating network. Leverage the power of the network, joining with thousands of business partners to collaborate on transportation processes to lower your annual spend and gain a competitive edge.
The third rule change - next in this blog series - focuses on the question "Is reducing spend the prime goal when bidding out freight?"