FEATURE OF THE WEEK – 10 reasons why the transportation world is becoming increasingly flat

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In Thomas Friedman’s award winning book "The World is Flat," he describes how the world’s competitive playing field has been leveled by a series of historic events. In this article I would like to outline the top ten developments that are flattening the transportation world for shippers and carriers.

1. Increased Customer Demands for Speed to Market and Supply Chain Reliability

Since the popularization of Just-in-Time services in the 1980s, manufacturers have been focused on reducing inventory levels, lowering production and logistics costs and providing increased service reliability. The ability to meet exact production schedules continues to be a driving force in the North American economy and a key differentiator for transportation and logistics companies.

2. Increasing Requirements for Security

The events of 9/11, 8/10, the London and Madrid bombings and the continuing unrest in the Middle East suggest that the issue of protecting people and cargo from acts of terrorism will be with us for many years to come. Shippers and carriers must continue to scrutinize their supply chains and transportation operations to minimize their levels of vulnerability.

3. Ongoing Capacity Shortages

The flattening of North American freight transportation capacity is being driven by several elements. Foremost is the growing shortage of qualified drivers. A second less publicized problem is a lack of investment in transportation infrastructure in both Canada and the United States. Third is the hours of service legislation that has been enacted in both countries (which was designed to increase highway safety). The byproduct of these laws is a restriction on the number of hours that a driver can work in a day and as a result, a reduction in freight capacity.
To address this issue, we are witnessing the advent of scheduled train service coupled with container reservation systems, the purchase of containers by truckers and intermodal marketing companies to expand capacity, the introduction of the "Pier Pass"program to increase the flow of ocean containers in southern California during non-peak hours, the revisiting of acceptable trailer and container lengths and a host of other developments.

4. Fuel Cost Increases / Alternate Fuel Development

Everyone is aware of the continuing increase in fuel costs. While fuel surcharges help carriers offset these cost increases, they have an inflationary effect on the purchase price of goods and services, most specifically transportation and logistics services. The heightened instability in the Middle East in recent months along with current political forces only serve to further unsettle the situation.
The impacts on transportation are likely to be profound. In addition to the drive for more fuel efficient engines and hybrid vehicles, there continues to be a need to identify more readily available and less costly fuel sources. These will continue to be major trends in the years to come.

5. Increase in Global Trade, specifically trade with China

This has been one of the most profound changes of the past decade. Almost every company I speak with is looking at how to import from and/or export to China. The opportunities for trade with China, India and other countries are enormous. Creating a strong global supply chain is fundamental to the survival and success of many companies.
The major North American transportation and logistics companies are trying to outflank each other with their global and China strategies. These include strategic partnerships, acquisitions, and new services. Other noteworthy capacity creation initiatives include new port development and expansions (i.e. Seattle, Savannah, Prince Rupert, etc.).

6. Outsourcing

This is one of the developments outlined in Friedman’s book. Many companies are choosing to focus on their core competence and outsource logistics functions to companies that specialize in this area. Outsourcing can take the form of basic or specialized warehousing and logistics functions including freight management, the replacement of private fleets and the assembly and packaging functions.

7. Expansion of Carrier and Logistics Company Service Portfolios

We are witnessing the geographic expansion of many of the large (but not fully national) LTL carriers (Old Dominion, R & L) and we are seeing many expand their range of services to include LTL, truckload, time definite and logistics services along with a host of specialized services (i.e. trade show, chemical industry etc.). The creation of a full portfolio of services coupled with full North American or global service coverage are being viewed as necessary to being on the same playing field as your competitors.

8. Logistics Industry Consolidation

This flattening of the universe of carriers and logistics companies has been ongoing for decades. This trend is expected to continue. The consolidation among the Class 1 railroads to four major US railroads and 2 Canadian cross border railroads is the most obvious example. The demise of Consolidated Freightways and the acquisition of Roadway and US Freightways by Yellow (now YRC), the purchase of Watkins by FedEx and Overnite by UPS are further examples. In Canada, TransForce, the Mullen Group and the Contrans Income Fund continue to pursue acquisitions to build their stables of Canadian carriers. Industry consolidation (and service portfolio expansion) is also taking place in the small parcel (Deutsch Post/DHL) and 3PL industries (Excel/Tippet and Britton).

9. Technological Innovation

Friedman outlines a range of technology developments in his excellent book. Certainly the Internet has had a major leveling effect on various elements of logistics. Many shippers have taken advantage of developments in software and the Internet to improve their supply chains through ERP, TMS and WMS implementations. The logistics and transportation industries have capitalized on these developments to drive efficiencies in their operations. These innovations include on-board computers, satellite tracking, multi service Web sites that allow shippers to price, book and track shipments and allow carriers to find loads that in the past would not have been available. Freight bids and reverse auctions have also been made possible by the Internet.

10. U.S. Currency Devaluation

This development is having a profound effect on the volume of goods moving between Canada and the United States, the proportion of goods moving north versus south, the volume of goods imported from or shipped overseas, the size of shipments (LTL versus truckload) and a host of other transportation related issues. If the U.S. currency continues to flatten, as some predict, to par with the Canadian dollar, this will continue the trend that began as the Canadian dollar reversed direction from the mid sixty cent range a few years ago.

Dan Goodwill is president of Dan Goodwill & Associates Inc. He 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 & marketing, TNT Overland Express. He can be reached at dan@dantranscon.com.

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