Paul Svindland is a managing director in the enterprise improvement group and co-leads the transportation and logistics practice of AlixPartners, a global business advisory firm.
The years of the last economic boom were good ones for trucking companies. During that time, carriers held a strong position in terms of pricing and market control. But things began to change by the middle of 2007 as the economy slowed and motor carriers began to experience a decline in demand. Between 2008 and 2009 the industry lost US $66 billion (or nearly 20 per- cent) in revenues, according to estimates by my firm, AlixPartners.
At the same time, the slowdown allowed buyers to gain bargaining strength as carriers competed for a much reduced market. Competition was so stiff that by the beginning of 2009, truck-load carriers had seen a reduction of 15 to 25 percent in their all-inclusive prices. In some cases, carriers were even absorbing some fuel costs as well.
The issue of overcapacity and the subsequent downward pressure on prices has been even stronger in the less-than-truckload (LTL) sector. Early 2009 saw a number of LTL companies engaged in very aggressive pricing to gain market share in what some say was anticipation of the failure of a major carrier and the tighter market that would result. When this didn't happen, the entire segment was left with excess capacity and even lower pricing.
The situation for trucking companies, however, has slowly started to change. By the end of 2009 and into the first quarter of 2010, we began to see signs of an uptick in demand and a corresponding stabilization of prices. Still, with analysts projecting a 2010 industry growth rate of only 6 to 8 percent, there is a long way to go to make up for the loss in demand.
This doesn't mean that we won't see discrete pockets of demand pressure, however. On the U.S. West Coast, for example, there is a need for trucks to move imports from Asia out of the ports of Los Angeles and Long Beach but not much demand for return traffic. Carriers may be hesitant to move their equipment to California just for one-way trips, and the result may be a tightening of capacity in the area. Still, overall demand will have to grow steadily for some time before we see capacity pressure at the macro level.
One thing that could kick trucking demand into higher gear—and thus affect capacity—would be a revival in building and construction. The construction industry is one of the chief sources of trucking demand. If construction activity picks up significantly, it may create upward pressure on pricing as excess capacity is absorbed. A stronger construction industry will also probably affect the availability of truck drivers. While there isn't a short- age of drivers right now, those who left construction and took jobs in transportation may return to the building trades.
A changing landscape
In the meantime, we can expect some other changes in the trucking landscape if the economy continues to improve. As AlixPartners' 2009 Manufacturing Outsourcing Index showed, the pricing advantage of outsourcing manufacturing to China has shrunk significantly, and Mexico has become increasingly attractive as a manufacturing location. We expect that continued volume growth out of Mexico could put pressure on trucking services and equipment and therefore lead to an increase in intermodal traffic if motor carriers can't accommodate that demand.
An improved economy will also encourage shippers to pay more attention to their fundamentals: making sure that they are using the proper mode of shipping; consolidating loads where possible; and looking for other efficiencies within their logistics network, whether in North America or elsewhere around the globe. For the last several years, for example, freight rates were so low that some of these basics have been set aside. Rather than taking LTL shipments and combining them to make a full truckload, for example, companies often would just ship the partial load; trucking costs were low enough that they could absorb the extra expense. But as freight rates rise, shippers will want to address such operating inefficiencies, even if carriers bring more capacity online.
As the recovery moves forward, we can expect the trucking industry to feel the impact of compa- nies' continued need to reduce inventories and shorten the supply chain in the service of just-in-time deliveries. Concerns about energy costs and conservation will shape industry practices, leading trucking companies to continue exploring new, fuel-efficient technologies.
Finally, as demand increases, carriers may find it difficult to continue to provide the same level of service as was possible during periods of excess capacity. As a result, both shippers and carriers should begin to implement the types of operational improvements that will help them to adjust to changing conditions. This flexibility will allow them to emerge with a strategic advantage as the economy recovers.
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.