The New Year will be an exciting one that will likely be shaped by the financial talks currently taking place in Washington. Here are some of the key trends to watch for in the coming year.
1. The “Fiscal Cliff” Crisis may determine the level of the Economic Recovery in 2013
As the year comes to a close, America is facing a number of economic headwinds (e.g. high unemployment and underemployment, mismatch between job skills required/positions available) and tailwinds (e.g. possible rebound in the housing sector, potential revival of domestic manufacturing, boom in energy production, improving household balance sheets). Senior government leaders in Washington are trying to solve America’s so-called “fiscal cliff” that is casting a dark shadow over the economy. The resolution of this crisis may go down to the wire and will likely set the tone for the economic recovery, or lack thereof, in 2013. Should America’s leadership come to a good understanding on tax increases and spending cuts, this will place the United States and probably Canada on a more solid path to an economic recovery, even if 2013 is not expected to be a year of robust growth. This will help shippers and carriers in all sectors of the economy. A failure to reach an agreement, a weak agreement or an agreement to push the problem down the road, will put a damper on discretionary spending, consumer confidence and possibly shove North America and much of the world into recession.
2. America’s Energy Renaissance/ Fracking comes to the USA
America is going through an energy renaissance. Induced hydraulic fracturing or hydrofracking, commonly known as fracking, is a technique used to release petroleum, natural gas (including shale gas, tight gas, and coal seam gas), or other substances for extraction. Fracking is allowing America to produce increasing supplies of energy just as the Middle East, the world’s leading source for petroleum, has become increasingly volatile.
Since the transportation industry is such a large consumer of petroleum products, these developments will have a profound effect, over time, on the types and volume of energy consumed by this sector. Of course, obtaining this energy comes at a price, a higher price than the “cheap oil” America has been accustomed to buying. With natural gas utilization, hybrid engines and electric powered vehicles in truck fleets still many years away, America will continue to buy petroleum based products. The good news is that fracking will provide a more stable source of supply. But high petroleum costs and high fuel surcharges will encourage shippers to place more focus on packaging optimization, improved cube utilization and near-shoring to keep freight costs in check.
3. Rails maintain focus on Intermodal
Intermodal volumes have grown steadily over the past decade. A recent JOC article suggests that this growth could moderate as truckers fight back to protect their market share. However the railways are relying on intermodal service as a growth engine. Coal volumes, a huge rail commodity group are expected to decline as the demand declines in overseas markets. The huge CAPEX incurred by the class 1 railways over the past 5 years requires these companies to earn a satisfactory return on their investments. All of the railways including CP Rail are developing and implementing intermodal growth strategies. Many truckers, both large and small, that are facing shortages of qualified drivers, particularly for long haul movements, are joining the intermodal party. The New Year should see continued growth from intermodal service.
4. Freight Brokerage Goes through Shakeout/Transformation
A major trend over the past decade has been the proliferation of the freight brokerage business. Entrepreneurs with a basic understanding of the freight business and trucking companies looking for a non-asset based way to increase revenues and profits, have been attracted to this sector. The money-making concept seems so simple. You find a shipper with a load, find a trucking company with low rates to move the load, add a markup and presto, you have a new source of profits.
Freight brokerage can be a great business in certain circumstances (e.g. high demand/high supply coupled with good customers and good technology). The trouble is that we are not living in a high supply/high demand time and the market is a bit saturated. Many companies that do not provide value are likely to be part of a shakeout or consolidation. The leading freight brokers are adopting a Freight Management customer engagement model as compared to a Freight Brokerage transaction model. Watch for this industry to consolidate as customers and the industry leaders raise the bar.
5. Risk Management Becomes a Major Focus of Shippers and Carriers
Over the past few years, the world has faced some unique challenges. Global warming is causing unusual weather and some very difficult storms. Whether you look at the Tsunami in Japan, Superstorm Sandy or severe weather in other parts of the world, these “Black Swans” are causing nightmares for supply chain professionals and transportation company leaders. In addition, the world is facing political unrest and the menace of very dangerous weapons and terrorism. Risk Management is going to receive more serious attention in the years ahead as companies commit to evaluating various threats in their supply chain planning and putting contingency plan in place.
6.Industry leaders need to become more Innovative
Many shippers and carriers have learned and implemented Freight Management 101. They have done the basics by acquiring TMS systems, rationalizing their networks, implementing dock appointment processes, conducting RFPs and becoming Smartway carriers. In other words, they have gleaned as much as they can in cost savings through the various traditional and available tools.
To continue to achieve cost savings in transportation, industry leaders must become more innovative. Running an annual freight bid will result in the law of diminishing returns. The focus must now shift to the overlooked and underappreciated areas of transportation – packaging optimization, integrated yard management, new types fleet equipment with expanded capacity (e.g. Wal-Mart’s 60 foot prototype tractor-trailer), business intelligence and compliance management. Innovative business practices will help companies keep their supply chain costs in line.
7. Dedicated Transportation
Truckload capacity constraints will continue due to an aging truck fleet, the higher cost of new trucks and trailers, significant safety regulatory changes and a challenging driver market. Concerns over the speed of the economic recovery will continue to restrain truckload carriers in hiring drivers and adding equipment. Truckload carriers will continue down the path of diversification that has been blazed by JB Hunt. One of the most attractive areas of opportunity will continue to be dedicated transportation.
The trend among retailers such as Wal-Mart and Home Depot to take greater control of their supply chains has intensified demand for dedicated carriage. Shippers looking to reduce cycle times and get products closer to customers are building regional distribution centres that are easily served by dedicated fleets. By offering consistency, flexibility and reliable contingency planning, dedicated carriage is a natural fit.
8. Shippers Need to Beware of Disguised Rate Increases
Transportation companies have not hidden the fact that they need rate increases to continue to invest in their businesses and improve their profit margins. However, in many cases they have not been totally forthcoming when it comes to the level of their rate increases. The so-called GRIs or general rate increases of X percent are often misleading or disingenuous. Shippers that move significant volumes of small parcel or LTL freight need to apply strong analytical tools to proposed carrier increases.
Carrier base rates vary. Rate increases may vary by weight break. A portion of some fuel surcharges may be added to the base rate. Accessorial charges may contain higher than advertised rate increases.
The message to shippers is Caveat Emptor – Buyer Beware. If you have volume, particularly small parcel volume, if you don’t have good analytical tools and you don’t have a good understanding of how small parcel or LTL rates work, seek professional help before you make any commitments. The advertised rate increase and the precise impact of a rate increase on specific shippers may vary significantly.
9. Retail Transportation will continue to Evolve as Internet Shopping becomes more prevalent
The retail sector remains one of the most vibrant and innovative areas of the economy and will continue to evolve in 2013. This will have a profound impact on transportation. As reported in the Top Stories of 2012, there are variety of new types of retailers, new types of transportation services and new types of transportation companies that are appearing to meet these requirements, whether they are for same day delivery, utilizing retail outlets as mini-DCs or the myriad of other service requirements that continue to emerge.
10. Transportation Technology will Reshape the Transportation Industry
Smartphones and Tablet computers will become increasingly important elements of transportation systems as PCs, notebook and netbook computers decline in importance. The proliferation of these devices is being enhanced by the rapid development of useful applications. These devices will transform freight transportation on the dock, in the DC, in the store and in the truck.
If you see any trends that I may have missed, please share them with the group. I wish all of you a successful, prosperous and healthy 2013.
