This time last year, the economic outlook was bleak and getting bleaker. Presently, things are better and seem to be fairly steadily (albeit not rapidly) improving. What does this mean for buyers of transportation services now and over the longer term?
The cost of buying transportation capacity and shipping product in every mode will continue to increase, albeit with periodic "adjustments" along the way. In part this will be due to rising costs (notably labor and fuel), a reduction of excess capacity, and, simply, carriers' ability to bump up rates from the low points they reached during the past 18 to 24 months.
Article Figures
[Figure 1] Annual productivity index for the U.S. rail industryEnlarge this image
Within this general trend, railroads and their customers are facing a unique set of challenges related to capacity constraints. By gaining some historical perspective on these issues, shippers will not only better understand what's going on but also develop strategies to deal with market realities. Frankly, this is not nearly as simple as saying "Just regulate rail rates so they can't take advantage of us"—even though some seem to think it is.
From Staggers to the recession
Part of the challenge for buyers is dealing with the legacy of the Staggers Act in 1980, which deregulated certain commercial aspects of the railroad industry. Since the passage of that law, rail rates generally have fallen significantly—even as the carrier landscape consolidated to the "Big 6" we have in North America today. This also happened to rates in other modes that were deregulated. That means for 30 years, with few exceptions, capable supply chain managers at well-run organizations were able to cut their transportation costs in virtually all modes. From the railroads' perspective, that was okay because during that same period, productivity—driven by smaller crews, bigger locomotives and cars, longer trains, and more automation—reached its highest point in history. And, for the first time since the end of the World War II era, railroads' earnings approached and in some cases actually met their cost of capital. This improvement attracted a more robust infusion of capital and led to an unprecedented level of investment in infrastructure as well as in new locomotive technology and larger-capacity rolling stock.
This was all very good news until the productivity curves began flatlining in 2000 and then declining in 2006. (See Figure 1.) At the same time, the Class 1 railroads' networks began experiencing congestion, and service suffered.
In an effort to regain margin, railroads raised some rates (in general, only "slightly," according to the U.S. Government Accountability Office) beginning in about 2001.1 But the result was that shippers ended up paying more money for service that wasn't as good as what they'd received in the past. Meanwhile, railroads were faced with having to make much-needed and very large-scale investments, mostly in infrastructure improvement and capacity expansion.
But the long-term issues of capacity expansion and infrastructure improvement were shunted aside by the 2008-2009 recession. Because of the drop in economic activity, freight volumes declined, which led to more fluid networks and improvements in service quality. As a result, it became easier to forget the looming capacity problem. But this is only a temporary reprieve. As freight volumes return and continue to grow, the rail network will again become strained unless two things happen: the railroads expand capacity, and they continue to improve their operating efficiency.
A map prepared for the Association of American Railroads shows what the rail network would look like in 2035 if capacity has not been added, and it's not a pretty picture. Major portions of the network—particularly in the middle of the country—are predicted to have reached or exceeded capacity. If you combine that picture with what the highway infrastructure is predicted to look like at that point, the whole view becomes even more distressing for those who are tasked with moving product (or people).
The bottom line is that building and maintaining an effective national transportation network with sufficient capacity will require immense infusions of capital from both the public and private sectors. Best estimates put the rail capital shortfall (what's needed versus what the carriers expect to generate from earnings) at about US $39 billion. That figure, however, does not reflect the predicted $12?15 billion required to meet the federally mandated Positive Train Control initiative that's designed to prevent collisions.
Start now
As a shipper, why should you care about the future of railroad infrastructure? Because more money is needed, and it basically will have to come, in some ratio, from two places: increasing revenue (rates) and decreasing costs (making operations more efficient). The only other sources are investment capital, which is only attracted by strong growth and returns, and public funding, which comes from a well that already serves many other constituents.
The railroads are adept at minimizing cost and maximizing efficiency. But their ability to wring out sizeable additional productivity gains is diminishing because they have already made most of the easy-toachieve improvements. This does not mean that new ways to boost productivity won't be uncovered. New technology (such as electronic braking, flexible blocks, enterprise asset management for linear and rolling assets, and integrated information technology platforms) may open a new frontier in productivity, but timing will be a factor.
The sum of all this is that rates across all modes will rise, as will the total cost of shipping cargo (rates plus fuel and accessorial charges). The question is, how much and when? There will be some fluctuation, but the overall trend will inexorably be upward.
This may sound like it's too far in the future to be of practical use now. But I would argue that the best long-term strategies incorporate tactics for dealing with these broader, more complex issues, and achieving that takes time, strategic thinking, and discipline. Successfully serving customers while confronting some very challenging conditions in the future will require vision and planning that begins today.
You can take steps in the short run to begin this process by focusing proper and rigorous scrutiny on your existing and anticipated supply chain network, and then developing plans to execute an integrated, multimodal strategy that strives to account for the changes you foresee.
History can be instructive if we pay attention. In the 1960s a vice president of the then-bankrupt New Haven Railroad boldly stated, "We have vast problems and only 'half-vast' solutions." This approach will not suffice in the future. And procrastinating is not a good option.
Endnote: 1. "United States Government Accountability Office Report GAO-07-94," October 2006.
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”