FEATURE OF THE WEEK: The Top 10 Transportation Stories of 2007
As another very eventful year in transportation draws to a close, it is time to reflect on the major news stories of the year. Here are some of the landmark events that made this a milestone year in freight transportation.
1. The “Freight Recession” of 2007
The current “freight recession” has become the transportation news story of the year in North America. The credit crunch and the downturn in the US housing market took their toll as all sectors of the freight market, – LTL, truckload, intermodal – experienced the ravages of the downturn in freight volumes. The US dollar dipped against many currencies of the world. At one point this year, the Canadian currency had increased in value against the US dollar by 25% before returning to par. The impact that this change has had on manufacturers and freight companies has been massive. Imports suddenly became so much more affordable. Exports suddenly became so much more costly. The very definition of what is headhaul and backhaul freight has been transformed. Trucking companies sought to redeploy their assets in domestic Canadian markets which in prior years had been overlooked. Many transportation companies on both sides of the border employed a number of strategies including parking trucks, cutting costs and aggressive pricing in an effort to weather the storm. At the same time, shippers took advantage of the swing in the balance of leverage to secure rate rollbacks and fuel surcharge reductions.
2. The Rise in the Cost of Fuel
While the freight recession has overshadowed many other news stories, the rapid rise in the cost of diesel fuel to the $90-$100 range has also been a major event. Perhaps one of the most surprising things about this change is how much consumers, carriers and shippers have come to accept the impact on freight costs. However, with fuel surcharges now are becoming 30% of the cost of freight, this long simmering topic has yet again come to the surface.
Spurred on by “An Inconvenient Truth,” the “green is good” movement became a hot topic for many shippers and transport companies in 2007. Everywhere you turned, this topic came up for discussion as companies focused on carbon reduction programs and other energy conservation measures. The “Smartway” program became popular and awards were handed out to shippers and carriers that embraced good conservation techniques. As often as we all heard the word “sustainability” in 2007, you will be hearing it even more in the years to come. This movement has “legs.”
4. The Opening of the Port of Prince Rupert
Prince Rupert was not a previously well known location in Canada until someone realized that it is the closest North American port to Asia. With the ports of Long Angeles and Long Beach, Calif. and the port of Vancouver, B.C. suffering congestion problems, this made a Prince Rupert a very desirable location to establish a major new port. With a well-conceived business plan and five strong business partners and with direct rail links to the Midwestern US, the newly opened port of Prince Rupert has a very bright future.
5. The Disappearing Fall Shipping Season
The Back to School and Christmas shipping seasons still represent the backbone of the surge in freight transportation in the third and fourth quarters of the year. However, for the past two years, something has spoiled the party. The explanations vary from the miniaturization of technology (e.g. the shift from stereos to iPods), the housing and credit crunch in the United States, the congestion at southwest US ports to better planning by logistics managers across North America. Whatever the reason, the fall shipping season “is not what it used to be” and may never be the same again.
While this movement has been under way for years, 2007 was a landmark year for many carriers and shippers. Major transportation companies ranging from YRC to Werner to Schneider made strategic acquisitions and formed strategic alliances in China. Daily announcements were the norm. Delegations to China and customer/supplier meetings became a major part of the rapidly developing global world.
7. The STB Ruling
On May 7, the Surface Transportation Board made two landmark decisions. First, it rescinded antitrust immunity for rate bureaus. Second, it removed the immunity for freight classification, under which committees composed of carriers set standard measurement criteria for specific commodities. These changes, as they take effect, will have a profound effect on North American shippers and carriers, particularly in the area of LTL freight pricing.
8. New LTL Pricing Methodologies Being Established
As a direct result of the STB decision, there will still be a requirement to establish one or more systems of classifying LTL shipments so as to create an orderly and logical way to perform LTL pricing. The NMFC did provide a national standard for classifying LTL freight. While carriers will not be allowed to work together to perform any type of collective rate-making activity, there will still be a need for some business organizations to create and maintain LTL pricing structures. New density and cube-based pricing tariffs are being developed by a number of organizations. You can expect to see one or more of these methodologies gain acceptance in 2008. Making a change to such a long established and well accepted process could result in some upheaval for carriers and shippers until some competing and reasonably universally accepted LTL pricing systems come into widespread use.
9. Mexico trucks allowed entry into United States
A five-member NAFTA trade tribunal ordered the United States to end its long-time ban on cross-border cargo haulers or pay Mexico damages that could reach billions of dollars. The ruling was the first major US defeat under the little-known arbitration process of the North American Free Trade Agreement. The decision caps a three-year process under which Mexico challenged then- President Bill Clinton’s decision to suspend the clause of NAFTA that allowed free passage for each nation’s trucks. The issue is central to NAFTA because 82% of the $240 billion annual volume of US trade with Mexico moves by land. Previously, the four million Mexican trucks that cross into the United States were allowed only within a zone ranging three to 20 miles north of the heavily congested border, where they transfer their loads to American trucks.
10. Let’s talk about Infrastructure
This incredibly important subject is finally starting to receive some discussion (and a little action). To get a sense of the future if no action is taken, take drive along Montreal’s major highways at rush hour. Key industry leaders such as the CEO of FedEx Freight are now bringing this issue to the surface. We have a long way to go to avoid a looming economic disaster. In 2007, this subject at least began to receive the attention it preserves.
While lists of this nature always leave out certain other important events, honourable mentions must go to such topics as the capacity glut (yes glut, not shortage in 2007), the increasing interest in risk and security management and the interest of private equity in transportation (at least at the beginning of 2007). No doubt, 2007 was quite a year.
Dan Goodwill, president, Dan Goodwill & Associates, has over 20 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 and 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. Goodwill also provides consulting services to transportatio
n and logistics organizations. He can be reached at firstname.lastname@example.org.
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