The Council of Supply Chain Management Professionals held its annual meeting in Philadelphia last week. Amid the familiar (Philly) sounds of Money, Money, Money (the theme song from Donald Trump’s The Apprentice) and The Hustle and a great keynote address from Carly Fiorina, the former CEO of Hewlett Packard, it was a decidedly downbeat conference. There is clearly a great deal of concern over the current state of the U.S. economy.
One of the panel discussions that included speakers from Schneider, Dell, Goodyear and Wall Street, provided some interesting insights into the state of the transportation industry in the United States. The consensus opinion was that it will take another six to eight quarters for the economy to turn around. The downturn in the U.S. housing market will play a big part in the drop in truckload activity. With the economic downturn there will be a significant drop in truck purchases and in driver recruitment. As a result, the expectation is that in late 2009 and beyond, there will be a severe capacity crunch, the likes of which we have never seen before. This will result in a large spike in truck rates. How’s that for doom and gloom?
The panel also addressed a number of other important topics. Shippers are no longer willing to pay for precision (time definite) services. These are now becoming the “price of admission.”
Congestion is growing at an alarming rate. One panelist commented on the tremendous investment that China is making in their infrastructure and how little the U.S. governments are making in theirs. The Port of Long Beach continues to be a trouble spot. More and more freight is being diverted through the Suez and Panama Canals and through the northeast ports. The Port of Savannah is now the fourth largest U.S seaport and the fastest growing.
The subject of procuring freight services also came up for discussion. One shipper commented on the need to invest in a very overused expression, carrier partnerships. His comment was “don’t dial down the routing guide” to the low priced, low quality carriers. The panelists also talked about taking a good look at how your carriers treat you during the good times and bad. Some carriers have taken advantage of the situation to push through large rate increases. Others demonstrated a more moderate approach by asking for reasonable increases. Shippers should not forget how they were treated by their carriers during this period.
One panelist mentioned that partnerships are two sided. As soon as there is a downturn in the economy, some shippers rush out to take advantage of their carriers by seeking rate cuts. Many partnerships are not as “open book” as they should be. Another panelist mentioned the need to look at “switching costs” in moving from one carrier to another. These costs should not be underestimated.
Many folks have labeled the current period as a “freight recession”. While it “looks and smells” like an economic recession, and the data seems to be there to support this in the United States, economists always seem reluctant to label a period as a recession until several quarters later. Whatever the proper term, the consensus is that the U.S. freight market is looking at eighteen to twenty-four months of tough times before it turns around.