In my last blog I began examining the three major trends – accountability, complexity and cost — that I think drive the success and fuel the fears of motor carriers. The first trend we looked at was the increasing amount of accountability expected from shippers. With this blog I want to examine the increasing amount of complexity motor carriers are expected to deal with. It’s hitting them on several fronts. And I think it will force motor carriers to make changes that over the next few decades that will radically change the trucking industry.
From the carriers I speak to on a regular basis, I get the distinct feeling that it is becoming increasingly challenging for them to understand their customers and to keep up with them. Most of the shippers that motor carriers traditionally dealt with, grew up believing in the power of vertical integration. That to reduce the costs associated with finding the right suppliers and negotiating with them and managing deliveries and storing inventory, it was best to integrate those functions into your own operations.
But our new technology has made that kind of business strategy unsustainable. Technology has made it much easier, much less costly to tap and manage supply networks outside North America. To integrate offshore, low-cost countries into a company’s global supply chain, for both sales and production.
Almost a quarter of Canadian firms already identify low-cost country sourcing as strategically important, according to research currently being conducted by Industry Canada. Eight out of every 10 Canadian companies that are moving production off shore say they have to do it in order to reduce costs and stay competitive. Goods at an intermediate stage of production now constitute 46% of Canada’s imports and 43% of exports.
What’s does all this mean to the Canadian motor carrier?
For carriers, it means FOUR things:
First it means a marked change in shipping patterns. The traditional head haul from the industrial heartland in central Canada to the West is being met by boatload after boatload of product coming in to our West Coast ports from Asia. Did you know that since 2002 domestic freight movements have been growing three times faster than the hauls to the US, that used to be our engine of growth? You are seeing Central-Canada based carriers, such as Challenger Motor Freight and Consolidated Fastfrate, setting up operations in the west.
Second, it means that key Canadian or US shipper contacts that motor carriers have being cultivating for decades, are changing. Tomorrow’s freight moves could very easily be routed by some freight forwarder in Asia, that worries about transport in Canada only after he has figured out how to navigate the freight through Asia, across the Pacific, through the port of call and into a warehouse, pic’n’ pak or transload facility.
Canadian carriers will have to identify those new decision makers across the ocean so they can ensure they get to move that freight once it hits our ports. I remember Claude Robert, CEO of Robert Transport, telling us that freight forwarding giants such as Schenker will come to control 50-75% of world wide freight distribution… and our carriers somehow have to get on their radar screen.
That’s why you are seeing a forward-thinker like Ron Tepper of Consolidated FastFrate opening a sales office in Shanghai. That’s why you are seeing him go off to India with a delegation from the Port of Halifax.
Third, it means becoming much more than they are now. This trend already started a decade ago when major shippers like Alcan shifted to core carrier programs, giving all their business to just a few major carriers that had to have both the capacity and the service portfolio to handle the business. The need of shippers to simplify the complexity involved with longer supply chains will drive this even further. In the words of Scott Johnston, head of Yanke Truck Group, motor carriers of the future will have to formulate alliances with other service providers or become more diversified themselves, offering warehousing, transload and pic’n’pak, etc.
That’s why you are seeing carriers like Yanke or Bison offering intermodal services. Why so many carriers are now offering warehousing services. Why Ron Tepper is spending millions building a new cargo distribution and warehouse facility in Dartmouth that can provide not only LTL services but transloading and drayage for international containers.
And finally, it means motor carriers will have to get a lot bigger in order to provide such services.
All of the top CEOs we spoke to a few months ago, believed exactly what Allan Robison, of Reimer Express believes: That the industry will continue to consolidate over the next 25 years until there are just a few major players dominating the majority of the hauls in Canada and niche players that may partner with them.