Transportation Management: Weathering the Perfect Storm

With powerful market factors converging to negatively impact transportation costs, capacity-and the bottom line-shippers can apply effective strategies to weather the storm and begin to build a world-class, integrated transportation system.


  • Rail capacity and performance. Traditionally, railroads have served as a kind of "safety valve" during times when truck transportation capacity is constrained-especially for bulk freight. In recent years, rail industry consolidations have created serious service issues and increased congestion across the entire rail network. In spite of these service issues, the Intermodal Association of North America (IANA) said in a recent article that intermodal growth is averaging more than eight percent in 2004.

Contributing to this increase in volumes are shippers feeling the truckload capacity crunch. These shippers are taking a closer look at the viability of intermodal (truck/rail/truck) transport for certain types of shipments-even shipments with relatively tight service requirements. However, for typical truckload and time-sensitive shipments, there just is not enough rail capacity today to fully alleviate the capacity and cost issues associated with pure truckload freight. In addition, though gains have been made, intermodal rail service to date has not proven to be as reliable as over-the-road transport when it comes to timely delivery. Rail is not immune to increasing costs either. According to a Freight Pulse survey conducted jointly by equity research firm Morgan Stanley and Logistics Today, the rail shippers surveyed expect their rates to rise 4.5 percent over the next six months, while reporting continued erosion of on-time service levels.

Facing both trucking capacity and rail constraints, only shippers having the visibility and instant communications capabilities offered by information technology will be capable of quickly finding and evaluating transportation modes in a way that enables them to make appropriate tradeoffs between speed and cost even across multiple modes of shipping

  • New environmental requirements. Also contributing to the truckload capacity issue are new diesel emissions requirements set to go into effect in 2007. Many carriers today are replacing their fleets ahead of this deadline, after which it is expected that the new regulation will result in a higher cost for acquisition of power units. So though, on the surface, the volume of new trucks sold recently would seem to point to an increase in total truckload capacity, really the opposite is true. Unlike previous expansion periods, the primary intent is not to expand their fleets, but rather to replace aging capital assets ahead of the regulatory milestone. As a result, the increase in buying on the part of carriers is not expected to significantly improve the capacity crunch, especially if the severe driver shortage continues.
  • Hours of Service churn. When the Federal Motor Carriers Safety Administration (FMCSA) new Hours of Service (HOS) regulations took effect early in 2004, there was much discussion in the industry about how accommodating the new rules would affect trucking capacity and shipping costs. Despite all the legal activity in 2004, it appears that the new regulations will be with the industry for a quite some time. However, the jury is still out on their overall economic impact.

It is clear, however, that the changing rules have made shippers more keenly aware of how they utilize drivers' time-and more watchful about avoiding delays and the resulting carrier-imposed detention charges. Many are working to improve their yard management and scheduling practices to ensure drivers get in and out in a timely and productive manner. Both shippers and carriers suffer from the inefficiency of idle drivers and equipment and the resulting erosion of profit margins. In this sense, the new HOS regulations may ultimately prove to be a good thing for the industry, having increased awareness of long-standing delay issues among carriers and especially shippers. Overall, most recent studies actually point to increased carrier and shipper efficiency under the new regulations - the change having resulted in fewer loading and unloading delays and increased trailer turns.

  • An improving business cycle. Today, with the economy improving in most market sectors, capacity has become even more of an issue for shippers. This is especially true for consumer goods companies where sales tend to be highly cyclical. Summer, back-to-school and the holiday season demand greater capacity and throughput, more shipping options and better service during the surge months. All this so that warehouses and retail distribution centers have ample stock to support increases in demand and special promotions.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for FoodLogistics.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required