The previous blog looked at the potential Trump Effect (http://www.dantranscon.com/index.php/blog?view=entry&id=258 ) on Freight Transportation in 2017. This blog will focus on some of the other variables that are likely to shape the freight world in the coming year.
Upswing in Economic Growth
While 2016 was a soft year economically and in terms of freight and freight rate pricing, shippers, carriers, and economists are somewhat more optimistic about the New Year. Interest rates are likely to remain low (although there will likely be some increases in 2017). Household balance sheets are expected to remain in good shape. Employment levels in the U.S. are projected to remain strong. Investment in energy development is likely to increase. Inventory levels are predicted to decrease, driving an increase in manufacturing. Donald Trump has committed to increase the number of jobs in the United States in the coming year. The improving U.S. economy will likely help boost the Canadian economy as well.
Increase in Cost of Diesel Fuel
One of the big questions for 2017 is whether the recently announced cutback in crude oil production will hold in the coming year. While the Saudis have agreed to cut production, the question remains as to whether or not Iran and/or Russia and/or other countries will maintain their production or increase it to boost revenues. If the reduction in production remains in place, watch for diesel fuel and fuel surcharges to continue to rise. This will of course drive up the cost of moving freight. Rising fuel costs will encourage more investment, more jobs and more freight activity in the energy sector.
Driverless Trucks
Many people believe that driverless trucks are inevitable. The key market forces are driver pay that represents approximately one third of the cost of truckload transportation. When recruitment, training and replacement costs are considered, driver related expenses are a major part of the expenses of almost every trucking firm. For years, there have been persistent driver shortages. In addition, hours-of-service and other regulations limit driver productivity. Driverless trucks, on a large scale, are still a few years away.
On a going forward basis, Princeton Consultants expects to see some Truck Autopilots, assisting traditional drivers still in their seats. There will also be some Driverless Tests where the linehaul will be performed on approved lanes, at designated times on highways and selected roads. Eventually we will migrate to Large Scale Driverless Vehicles when the public is convinced that the technology is safer than human drivers, perhaps leveraging remote pilots.
The Consumer-Centric Supply Chain
ECommerce has had a CAGR of 17% vs. non eCommerce CAGR of 3% (2000-2015). 94% of Consumers responded that they placed an eCommerce order in the last 12 months and 96% plan to place an eCommerce order in the next 12 months. Consumer convenience and digitalization are driving the supply chain of the future.
Consumers are seeking (and are being conditioned to receive) time specific and free delivery. Uber is planning a same day delivery service for retailers and is transformoing taxis into food delivery services. Amazon Flex is expanding deliveries from its on-demand drivers. Amazon is building their own fleet of vehicles. New players (i.e. Shyp, Ship Bob, Flexport, Friendshipper, Zipments, Cargomatic, Truck Track) are entering this space with innovative services. Each player is creating its own combination of efficiency, technology, analytics, strategic growth strategies, innovation and organization to develop a sustainable business model.
Growth of the 3PLTL
The LTL sector of the freight industry has been undergoing significant change over the past few years. LTL terminal networks are running close to capacity. Some carriers are actually building new terminals, a strong sign of better days ahead. LTL pricing has remained disciplined. It wasn’t too long ago where logistics service providers were viewed as the enemy of the LTL industry. Over the last few years, 3PLTLs have been growing their share of the LTL business and are now believed to be managing forty percent of the freight in this sector. As consumer needs continue to evolve, watch for 3PLTLs to broaden their LTL services and gain more market share.
Industrial Real Estate Set to Break Records in 2017
Low interest rates, healthy consumer spending and strong e-commerce are forming perfect conditions for industrial and logistics real estate growth in 2017. Potential investment in infrastructure and continued company expansion are also expected to fuel demand for warehouses and distribution centres despite global economic uncertainty.
Jones Lang LaSalle has identified five factors that will impact the sector in 2017:
(i) The infrastructure revival.
(ii) E-commerce and urban logistics continue rapid evolution.
(iii) Ports benefit from both infrastructure updates and e-commerce.
(iv) Institutional investor interest is higher than ever.
(v) The rise of creative industrial real estate development.
Drones
The FAA has allowed Amazon to test Amazon Prime delivery drones up to 400 feet and 100 MPH, but they must be line-of-sight controlled.“One day Prime Air deliveries will be as common as seeing a mail truck. The technical problems are very straight forward. The biggest thing that needs to be worked on is the regulatory side.” – Jeff Bezos, Amazon CEO (Telegraph, August 2015) Drones are already here.
Three ingredients are needed for broader adoption: Regulations, Technology, and Cost/Benefit. Competitive drone products are now evolving in the consumer space that can be piloted with smart phones. According to Princeton Consultants, the market acceptance of drones for commercial use is likely to proceed in the 3 stages.
(i) Private Drones – used largely in private facilities (inside/outside)
(ii) Remote Delivery – Improve service/reduce costs to remote locations
(iii) Widespread Delivery Drones –Regulated uses and airspace, starting in selected areas and expanding over time coupled with growing public acceptance and improved technology/business case
Happy Holidays and Best Wishes for the New Year! Thank you for following this blog and for your kind support throughout the year.
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