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Clearly, he’s a glass-half-full kind of guy – an attitude that can be difficult to maintain these days, particularly with the backdrop of such extreme negative rhetoric in a presidential election year.
He mentioned consumer confidence appears to be up slightly, but noted the manufacturing sector has been in expansion mode for more than 27 consecutive months, sometimes just barely. Yet, the tone of our conversation remained cautiously optimistic as we discussed the current state of logistics and what it could mean for transportation and supply chain professionals in the next several months.
Our conversation shifted to economic assessments given by industry economists during the recent NASSTRAC Shippers Conference & Transportation Expo. Some believe freight transportation spending will continue to rise, unfortunately, due more to higher rates rather than increased freight volumes.
Interestingly, while some transportation sectors had experienced lower revenues just this past year, we saw trucking companies, third-party providers of transportation services, and the railroads report significant profits and strong balance sheets throughout 2011. What’s important to remember is that this happened in a non-constrained environment, with only lackluster volume growth.
The trucking industry, which is 77 percent of the overall transportation industry, posted a 6.2 percent rise in profitability. The 3PL and forwarding sector was up 9 percent and seemed to gain strength at the end of 2011. But clearly the real economic leader was the railroad sector, which experienced a 15.3 percent increase.
A common theme I’ve heard among NASSTRAC members is that intermodal is experiencing the same capacity problems the trucking sector faces. Yet, they see trucking companies actually using intermodal rail to help offset the impacts of driver shortages and the costs of acquiring and maintaining new equipment. In 2011, in spite of tightening capacity and an overall decline in volume, trucking rates were up 5 percent to 15 percent – and it appears we may continue to see more of the same in coming months.
Meanwhile, even with the air cargo sector’s record year for exports, the industry still experienced a decline. Domestic air cargo revenue dropped more than 3 percent compared with less than a percent decline in international revenue.
The challenge facing the ocean container industry is even more disconcerting. One NASSTRAC member said the ocean container industry just keeps building new vessels “to keep up with the competition,” when they really should be limiting capacity. This behavior appears to be a holdover from the days when the ocean carriers’ mantra was “grow or die.” But what they’re really doing is contributing to what shippers see as a growing problem in excess capacity; contributing to eroding rates, declining service, and operational losses.
While rates and capacity are concerns among shippers, I see the continued rise in inventory carrying costs to be more of a concern. Many shippers say this increase in carrying costs is being driven by higher costs for taxes, product obsolescence, depreciation, and insurance—all tied to the rise in inventory levels. My advice returns to that first conversation: Be patient as you wait for industry growth to slowly improve. In the meantime, continue to assess your current supply chain practices and take steps to leverage your own strengths, and overall relationships with providers. You may be surprised at what you can accomplish, even in the current economy.
Yes, perhaps I’m a glass-half-full kind of guy myself. wt