IT’S A NEW DAY

Those who are students of ancient history (Before I Phones)) may recall the “carriers’ market” of 2004, when capacity was tight and freight rate increases were the order of the day. It was a good time to be in the trucking business. For 10 truckload carriers tracked by BB&T Capital Markets, earnings rose an average of 21.65 %, during the first quarter of 2004, compared to 2003. Several senior motor carrier executives were quoted in the press expressing their glee over their new found power in the marketplace. Needless to say, this did little to enhance the carrier/shipper relationships.

But conditions change over time and there have been several shifts in position since then. Currently however, I believe we have a whole new ball game in an uncharted marketplace where shippers and others have become more reactionary. Consumers have gained control of the marketplace and are putting pressure on retailers to improve service at little or no cost to them. Encouraged by programs such as those of Amazon, more and more buyers believe they should have immediate, inexpensive service from everyone. As this trend settles into an ongoing reality, it is affecting the entire supply chain, particularly in inventory management and carrier service requirements. In order to make consistent same day or next day customer deliveries, while maintaining a reasonable level of inventory, everyone in the pipeline must perform flawlessly; and this is where the carriers will feel the pressure.

In February, Wal Mart announced to its suppliers it was raising its on-time delivery standard from 90% to 95%, and reducing its delivery window from 1 to 4 days to 1 to 2 days. At the same time, they will shorten customer delivery times from 3 days to 2.

Right on the heels of that announcement, Target has announced even more onerous requirements. Suppliers will be faced with a one day delivery window, with no grace period. Fines for missing the delivery deadline will be 5% of order cost. (There already is a fine of 1-3%, depending on the product, but there also is a 2 to 12 day grace period.) . The Target requirements obviously are much more stringent than those of Wal Mart; and in my opinion, downright unreasonable. Carriers will face increasing demands which will be difficult and expensive to meet.

Keep in mind all this is going on at the same time that many other shippers – retailers and others – are pressuring carriers to reduce rates. The long anticipated capacity crunch has not materialized, and volumes are weak. John Larkin of Stifel Transportation and Logistics Group reported that a strong U.S. dollar continues to hamper exports, inventories are bloated, and consumers are cautious, all of which are weighing heavily on transportation demand.

Conditions are very different than they were in 2004, and instead of getting even, shippers and receivers need to play nice. I firmly believe that today’s marketplace, more than any in recent memory, requires true collaboration among all parties in the process. This does not include making unreasonable demands or placing unusual stress on any of the supply chain links.

Written By: Clifford F. Lynch