Supply Chain Recovery Will Come at a Price
Posted on Mon, Mar 15, 2010 @ 03:56 PM
Much has recently been made about a perceived recovery in the supply chain arena. A recent blog by Bob Trebilcock, MMH Executive Editor- Logistics Management cited anecdotal evidence of this recovery.
Left unsaid in all the hype is the looming capacity shortage in the trucking sector of the supply chain. Since no other modality can completely replace trucking this issue is and will remain the 600 pound elephant in the room that no one wants to acknowledge or talk about.
Capacity (trucks) has depleted the trucking industry over the past two years at a pace never before seen. According to experts [Avondale Partners, LLC] some 5,000 carriers and 175,000 trucks were lost over the past two years and unlike prior cycles, most if not all of these trucks are not coming back.
This cycle saw many independent contractors (owner/operators) not just park their trucks as in the past but sell them or lose them to repossession and walk away from the industry. Even if they wanted to return, the realities of the post-crash credit markets preclude them from financing another truck.
Likewise, many carriers put off capital purchases, extended maintenance schedules, reduced head counts and pay and took other actions to conserve cash and have so depleted their balance sheets that purchasing replacement trucks (let alone additional trucks) is simply not an option. Many shippers forced rate reductions down the throats of their carriers further exacerbating the cash crunch. Shaky carriers who avoided bankruptcy by these actions may not find their lenders as forgiving in 2010. Factor in CSA 2010 and its’ expected impact on the trucking industry and the stakes are raised even higher. I fully anticipate capacity to continue to shrink for the foreseeable future.
On the other hand every other overhead cost for carriers has increased, from licensing and permit fees levied by cash-strapped states, to Unified Carrier Registration (UCR) fees, equipment and maintenance costs and fuel. Pressure on carrier margins has never been more intense. They have captured every economy they can. The only option left to them is increased rates. We are already seeing shippers offering premium rates in order to get their product moved in markets around the country.
Shippers, looking for concessions in hard economic times, shoulder much of the blame and will shoulder much of the cost of the cure. Of course the cost will ultimately be passed along to the consumer. The pendulum is about to swing the other way.
Shippers will now need to take a serious look at truly partnering with carriers in order to ensure sufficient capacity to take advantage of the recovery. True Partnership is a concept foreign to most traffic managers. It’s different than just selecting a “core carrier” or a consortium. Shippers are going to have to ensure they pay carriers rates sufficient for them to attract and retain good, safe, professional drivers. Gone are the days of trying to squeeze every last cent of rate concessions from carriers. That business philosophy will result in product sitting on docks with no prospects of getting it to market.
The Supply Chain may well be recovering but it also changing forever.
Article submitted by Kevin Mullen, Director-Safety ADS Logistics