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by Stephen Craig, Sr. Managing Partner, enVista
- Transportation has been and remains a leading economic indicator.
Transportation spending dropped before the recession hit (the last few Christmas “peaks” were not as high as in years past) and it should pick up a little before we come out of the recession.
- Transportation rates fluctuate with demand, so with demand low, don’t expect to see rates rise much.
They seem to have stopped falling and even ticked up in some lanes but rates will stay soft until general economic activity firms up.
- Carrier comments about having reduced capacity so that when the economy picks up, rates will supposedly shoot up really quickly seems to me to be whistling past the graveyard or just a negotiating tactic to try to get better rates now.
Barriers to entry remain low and there is an awful lot of parked capacity that can come back into the market as soon as there is demand for it. With the current dearth of construction jobs, even the slightest uptick in demand could be met with enough new capacity that prices could stay low.
- There will be another fuel price shock.
Fuel prices are low because the U.S. went into a recession, not because anyone is finding more oil or Chinese demand has stopped growing. When U.S. economic activity picks up fuel prices will rise and our reluctance over the last 30 years to force industries to be more energy efficient will put our nation at a disadvantage with respect, for example, to Europe where regulation forced efficiencies that are now proving to competitive advantages.
- Transportation Management Systems sales will continue to trend away from “behind the firewall” offerings to Software-as-a-Service or On-Demand offerings.
Simply put, it is a vastly superior business model for transportation systems as long as the SaaS offering incorporates carrier connectivity, something shippers have long had real difficulty maintaining.
- Freight Management outsourcing will continue to grow (in some form or fashion).
The pressure on headcount at most shipper companies is just too great to add staff versus using one more provider. Historically, intermediaries like transportation brokerages have grown quickly during periods of tight capacity and then shrunk just as quickly when capacity was not tight. However, brokerage has not shrunk as much this time around and it may be because brokers are acting as a kind of “transactional” 3PL where shippers do not go through all the effort (or realize the full benefit) of full outsourcing. The brokers do take on some headcount pressure by relieving tasks and they do so in ways that “hide” the cost in the transportation rates (as markup and/or margin).
- Next year there will be another round of trend articles…
Best regards,
Stephen Craig
Sr. Managing Partner, enVista
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