Thursday, April 30, 2009

Capacity rationalization still needed in trucking industry


This article, while sounding draconian, accurately reflects the trucking industry's excess capacity still chasing too little demand. So, what is the impact, now and in the future, between transportation suppliers and consumers?

Consider the following points: 1. With excess capacity still in the market, a majority of agreements between shippers and carriers are probably based solely on price (rates and discounts). 2. When the economy eventually rebounds, it will be leaner and more efficient across a breadth of industries. Accordingly, the surviving carriers will be those with streamlined linehaul operations, updated "back-office" and in-cab technology coordinating deliveries in a rationalized network minimizing the number of empty miles. 3. Lesson to be learned: Carriers -- improve/optimize now. Shippers --- develop your relationships now as price points will adjust upward once supply and demand are rebalanced.


A contemporary example of the impact of the industry's capacity rationalization is the recent annnouncement by ABF to consolidate and realign its operations.

In a nutshell, they are seeking efficiencies and it's analogous to an airline improving yield management by allocating the right size aircraft on the right length flight to carry the maximum number of passengers per mile. In trucking, it's very similar; the more direct the route, with fully loaded trailers, the better. This simply means less handling (less labor cost & potential for damage) and greater density per mile traveled. All of this adds up to better efficiency, which will drive costs lower.

Only the fittest will survive in this industry over the next 2-3 years. Those carriers that emerge on the other side of this recession will then be positioned to provide shippers with efficient distribution networks. However, I suspect they will have long memories of which companies negotiated with them now only on price instead of developing strategic supplier relationships as part of building a robust supply chain for the future.

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