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Here are the top stories in freight transportation that caught my attention over the past year.

The Tepid Economy

The North American economies underperformed the global economy and the economies of emerging markets in 2016. Business investment, a key driver of the economy, was down in 2016, driven in large part by the big drop in fortunes of the oil and gas industry. Consumer spending and employment levels remained solid in the United States and somewhat less so in Canada. US manufacturing activity increased.

US imports began an uptick as did US imports of Canadian goods, driven in part by the strong US dollar and drop in the value of the Canadian dollar. Auto manufacturing remained strong in Canada but resource and activity in other sectors remained weak. The strong US dollar depressed export activity. Overall it was a sub-par year for the American and Canadian economies. As a result, demand for over the road truckload, intermodal and LTL service was soft in 2016.

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As the year 2013 winds down, it is time to reflect on the major transportation trends of the past year.  While I saw and read about a wide range of developments, these are the ones that resonated most with me.

1.Technology Comes to Freight Transportation

Last year I predicted that we would see a flurry of new technologies come to freight transportation.  They did and I wrote about some of these new companies on several occasions during the year.  Technology was successfully applied to the freight brokerage business, freight portals, LTL density calculations and to other segments of the industry.  Buytruckload.com, PostBidShip, Freightopolis, QuoteMyTruckload,  and Freightsnap were featured in various blogs during the year.  They are changing the way business is done in freight transportation.  Watch for more of these companies to surface in 2014.

2013 has been called the Year of the Network by numerous supply chain and transportation industry thought leaders.  Companies that built a successful supply chain trading partner network focused on three elements:

Connectivity— unite disparate systems and trading partners

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At the end of each year, I like to take stock of the major freight transportation stories of the past twelve months and look ahead to the trends that will drive the industry in the coming year.  The two blogs that I write are prepared from my perspective as a consultant to shippers and carriers.

This year I would like to hear from you.  Those of you who follow this blog observe trends in your segment of the industry.  Please take a minute to share them with me.  Please post them on this blog or send a private e mail to dan@dantranscon.com

Please feel free to select any major trend or trends that are having or will have a major impact on our industry, whether regulatory, economic, technological, demographic, consumer behavior, environmental, modal shifts or business strategy.

To broaden the range of inputs and perspectives, I will also post this request on Facebook, LinkedIn and Twitter.  In the coming weeks I will be preparing my two lists.  The lists will include a blend of my observations and yours.  Look for these two blogs in mid-December.  Thank you to those of you who take the time to share your observations with me.

 

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Last week the Council of Supply Chain Management Professionals released its 24th annual State of Logistics Report. Last year, business logistics costs were once again 8.5 percent of U.S. Gross Domestic Product (GDP), the same level they hit in 2011, the new report says. That means freight logistics was growing at about the same rate as the GDP. Inventory carrying costs and transportation costs rose "quite modestly" in 2012, said the report's author Rosalyn Wilson. Year-over-year, inventory carrying costs (interest, taxes/obsolescence/depreciation/insurance, and warehousing) increased 4% y/y as inventory levels climbed to a new peak. Meanwhile, transportation costs were up 3% y/y predominantly from an increase of 2.9% in overall truck transportation costs.

This "new normal" is characterized by slow growth (GDP growth of 2.5% to 4.0%), higher unemployment, slower job creation (which will primarily be filled by part-time workers due to higher healthcare costs), increased productivity of the current workforce from investment in machinery/technology (and not human capital), and a less reliable or predictable freight service (as volumes rise but capacity does not increase fast enough to meet demand). Wilson noted that slow growth and lackluster job creation has caused the global economy to wallow in mixed levels of recovery. "This month will mark the fourth year of recovery after the Great Recession, and you're probably thinking that here has not been much to celebrate," said Wilson. "Is it time to ask, 'Is this the new normal?'"

For logisticians, the "new normal" means less predictable and less reliable freight services as volumes rise but capacity does not. In areas such as ocean transport, Wilson said, this can mean slower transit times. "I do believe the economy and logistics sector will slowly regain sustainable momentum, but that we'll still experience unevenness in growth rates," Wilson predicted.

For cutting-edge logistics managers, however, the current environment also means great opportunities to secure increasingly tight capacity in an era of shrewd rate bargaining. This is partly because the trucking industry, in particular, is facing a lid on capacity because of higher qualifications for drivers while top carriers are becoming increasingly selective in their choice of customers and in the allocation of their assets.

"Truck capacity is still walking a fine line—few shortages, but industry-high utilization rates," Wilson explained. Truckload capacity continues to remain stagnant (with the majority of new equipment orders for replacement or dedicated fleets and the copious amount of truckload capacity sapping regulations coming down the pipeline) and the assumption that freight demand will continue to modestly increase (as the economy continues to muddle along at low single digit GDP growth in combination with population growth), a less predictable and less reliable freight market is developing (as described in the "new normal").

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Today we received some unexpected good news in the United States as the unemployment rate fell to 8.6%.  In Canada the news wasn’t as good as the unemployment rate increased to 7.4 percent.  Without counting those people who have given up looking for work or who are underemployed (e.g. performing a job below their level of expertise and education at a wage inferior to what they should be earning), there are about 14 million people unemployed in North America (e.g. 13.3 million in the United States and 1.3 million in Canada). 

FTR Associates estimated that there was a shortage of 200,000 drivers in the United States in the first quarter of 2011.  How does one explain the fact that out of a pool of 13.3 million unemployed people (plus millions more if you include those who are underemployed), we cannot find 100,000 to 200,000 individuals to fill these jobs?

Here are some thoughts on this apparent anomaly.  There were 3.2 million commercial drivers in the United States in 2008, including 1.8 million heavy haul or tractor-trailer drivers, according to the U.S. Labor Department.  By May 2010, the number of big rig drivers had dropped 18.4 percent to about 1.5 million.  In other words, there are 300,000 drivers that left the labour force that should be available to fill the available jobs.  Why is it so hard to convince them to come back to work?

One of the most frequently mentioned reasons is compensation.  In the United States, experienced truck drivers can make $50,000 a year at some truckload carriers.  According to a BLS survey, the average wage was $39,450 in 2010 while the median wage was $37,770.  The survey indicated that 75% earn less than $47,000 per annum. 

The trucking industry has a long term practice of paying its drivers by the mile.  While there is certain fairness to this approach since it correlates directly with the amount of miles driven and hours worked, it also injects a level of uncertainty into the driver’s weekly pay package.  Inconsistent load availability translates into inconsistent pay. 

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