Major trends sure to shape the world of freight transportation in 2010
December 30, 2009
December 30, 2009
As we say good bye to the ravages of 2009, here is a list of some of the trends that will have an impact on shippers and carriers in 2010.
1. Modest Economic Growth
There are many signs that the economy is improving. The consensus view among economists is that we will see economic growth in 2010 but it may not feel too buyout. In an economy where consumers drive 70% of GDP growth, high unemployment, a weak housing market and tight credit will serve as strong headwinds.
2. The Jobless Recovery of 2010
With tepid growth, companies will remain cautious about hiring staff. As a result, there will be continuing pressure on worker productivity. The quoted unemployment figure of 10% in the United States and less than 9% in Canada mask the true level of unemployment. There are millions of people who have given up, who are working part time, who have started their own businesses or are underemployed. The true unemployment figure of 16 to 20% will continue to be a drag on the economy and freight volumes. Some experts are predicting a “jobless recovery” that could take four to five years to replace the jobs that were lost last year.
3. Freight Rate Increases are Coming to Town
As volumes increase and capacity shrinks due to the industry consolidation, freight rate increases will become prevalent as carriers seek to reverse the revenue erosion they have suffered in 2009.
4. Frugality Fatigue is Setting In
There are signs that consumers are getting tired of holding off buying a new Smartphone, HD TV, electronic book reader or netbook computers. Frugality fatigue will likely set in as consumers begin to wade into the water and buy items that they have been holding off purchasing during the recession.
5. The Push for Pull
Ultra efficient retailers are developing supply chains that manufacture “fast-fashion” apparel in small batches and have information systems in place to obtain real-time feedback on their popularity. These nimble supply chains only stock items that consumers want, thereby maintaining below average inventory levels. The concept turns “push” manufacturing on its head by trusting buyers will “pull” a product into the market.
6. Inventories Start Growing Again
Low sales volumes in 2009 resulted in uncomfortably high inventory to sales ratios. Many companies spent the year drawing down their inventories. As business picks up in 2010, this will drive manufacturing which in turn will result in inventory replenishment.
7. 10 + 2 and You
The new 10 + 2 Importer Rules take effect in January 2010. For any importers that have not initiated a compliance program, they run the risks of monetary penalties and shipment delays.
8. The Freight Industry Consolidates
There are some major carriers sitting on the bubble. The banks have been reluctant to push trucking companies into bankruptcy since there is such a limited market for freight terminals and other trucking company assets. Look for the banks to make a move on carriers that have no chance of paying back their debts as the economy improves. As the weaker players depart, this will serve to consolidate the industry.
9. Get Ready for CSA 2010
The United States Federal Motor Carrier Safety Administration (FMCSA) plans to fully implement a new safety initiative known as Comprehensive Safety Analysis 2010 or CSA 2010. The goal of the program is to achieve a greater reduction in large truck and bus crashes, injuries and fatalities, while maximizing the resources of FMCSA and its State partners and it is expected to be fully operational by the end of 2010. The implementation of CSA 2010 will result in three major changes. The motor vehicle record or driver abstract will be changed. Individual drivers are going to be audited and each will be given a personal safety rating. An updated safety rating for each driver and trucking company will be issued every 30 days.
The personal safety rating will determine whether or not the driver is considered eligible to continue driving, requires some sort of “intervention,” or is deemed “unfit” to continue operating a commercial vehicle. Similarly motor carriers will face increased scrutiny under CSA 2010 and will face harsh fines, corrective action plans and even risk having their entire fleets placed out of service due to violations.
10. The Miniaturization of Freight Continues
This movement has been under way for years as MP3 players and mini computers replace the large stereo systems and desktop computers of the past. This movement continues to grow. Electronic book readers are the latest pieces of technology to gain traction. Over time, more and more people will begin reading newspapers, magazines and books on their electronic book reader. This will hurt the pulp and paper industry, the book publishing and newspaper industries and the transportation industry that carries the truckloads of newsprint and books today. Similarly the Smart Car and the Tata represent two examples of how the automotive industry is undergoing miniaturization.
11. The LTL Industry Reshuffle
The current state of the LTL industry in North America needs to be transformed and would be transformed with the possible bankruptcy filing of YRC. This would serve to move their 18 to 20% market share over to the remaining players. It would reduce the level of rate cutting. The good news for shippers is that additional freight density would improve the health of the remaining LTL providers. The bad news is that LTL freight rates would go up, in some cases significantly.
12. Smart Shippers Will Lock In Capacity
In 2009 shippers took advantage of their pricing leverage to secure freight rate reductions. As time evolves, supply will come into line with demand. Shippers will need to lock up capacity by signing multi-year contracts with the strong survivors to protect the integrity of their supply chains.
13. Intermodal Length of Haul is Decreasing
Schneider National, Pacer and J.B. Hunt will compete in 2010 to increase market share in the intermediate distance markets of 750 to 1000 miles. Schneider has paired with CSX while Hunt has inked a deal with Norfolk Southern. For Hunt this strategy will be a continuation of their 2009 strategy that allowed them to increase eastern network loads by 38% in April. Schneider’s efforts are focused on the Chicago-Florida, Chicago-Northeast, Florida-Northeast and St. Louis-Northeast routes. The lower fuel consumption levels using intermodal transport help shippers achieve sustainability objectives.
14. Wal-Mart’s Packaging Initiative
In addition to the miniaturization movement, Wal-Mart has been the leader in the green revolution. This initiative to reduce cube utilization through packaging changes goes hand in hand with their push to improve fuel efficiency. This will continue to be a major trend that will gain followers from other industries and companies.
15. China, India and Brazil
This is where the action is. The growth in these economies will likely outpace the growth in North America. Canada needs to diversify its economy away from its overdependence on the United States. It needs to harness and leverage the expertise of its large immigrant population. As an example, the Indian economy is expected to grow by 6 to 7 percent in 2009, significantly more than Canada. With more than 1 million Canadians tracing their family origin to India, and with skills in the high tech industry, there is immense scope for Canadian companies in India. India’s middle class of 300 million is roughly the size of the United States. Smart Canadian companies will move forward with their market diversification strategies.
16. Lean Manufacturing
This trend that has been around for years will continue to gain prominence. The elimination of waste and non-value added capabilities (for which a consumer will not pay) has proven to be a particularly effective way of reducing costs.
Despite the limited outcomes of the recent Energy Conservation Summit, fuel conservation is here to stay. With limited supplies of fossil fuels and energy demand increasing, particularly in the developing nations, the drive for energy efficiency will continue in 2010. Hybrid vehicles are also an element of the energy efficient movement.
18. Oil Prices Only Have One Way to Go
The emerging markets and the Middle East are consuming 20 million barrels of oil a day. They are projected to consume 42 million barrels a day in 20 years. The reserves are not going up and the alternatives are going to take time to develop. As economic activity increases in 2010, the price of oil only has one way to go.
19. It is Hard to Fix It If You Cannot See It
Cash will likely still be king in 2010. Inventory management tools provide shippers with real-time data to see exactly where their products are in their supply chain, how much they have in stock and how much product their suppliers can provide. While these visibility tools cost money, they can provide shippers with the data they need to take excess costs out of their distribution networks.
20. Transloading will be revisited as a Strategy in 2010
Transloading in its most basic form is the transferring of cargo from 40-foot marine containers into domestic 48- or 53-foot containers or trailers to reduce inland transportation costs. The economic downturn along with significant reductions in warehouse rental rates and higher fuel costs are causing shippers to revisit the economics of transloading to see if it will now work. The stability of intermodal service and the additional cubic capacity of 53 foot equipment may make this a viable strategy for some shippers in 2010.
Thank you for supporting this blog in 2009. I wish all of you a healthy, happy and prosperous 2010.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill