WHERE DO WE GO FROM HERE?

J. Paul Getty said, “Without the element of uncertainty, the bringing off of even the greatest business triumph would be dull, routine, and eminently unsatisfying.” If you believe this, then there is no danger of becoming bored in your supply chain role. These words are particularly applicable in managing supply chains in the current uncertain economy, not to mention the tumultuous campaign for the presidency.

Many of us will long remember the “Great Recession” which began in December, 2007, according to the National Bureau of Economic Research (NBER), a private research group that keeps up with that kind of thing. Rather abruptly, managers were asked to do more with less – at least those who were able to keep their positions in the face of significant personnel reductions. According to NBER, the recession ended in June, 2009, allegedly sending us down the road to recovery, a road that seven years later still seems a little rocky. Columnist George Will suggests we have “dumbed down” the definition of recovery, giving the slow, slight recovery more credence than it deserves. Probably some would argue the recession hasn’t ended at all. Will further suggests that “the grim news is not that the economy continues to resist returning to normal. Rather, it is that the current equilibrium is the new normal.”

One of the major concerns of the supply chain in post – recession years has been the looming shortage of carrier capacity. The 2012 State of Logistics Report described trucking capacity as being in a “tenuous equilibrium state.” There were fewer trucks, fewer drivers, and fewer trucking companies. The other shoe would be dropping any day. Higher rates resulting from deceased capacity were included in most budgets for the year 2013. We are still waiting for that shoe to drop.

Certainly there is a shortage of truck drivers, but it has not has as much of an impact as predicted. And capacity is decreasing, but according to John Larkin of Stifel Global Transportation Research, this is a response to weak demand. He predicts that while government intervention will result in further decreases, it will not affect rates until the second half of 2017, and that assumes a moderate growth in the economy. (Stifel 2016 Transportation and Logistics Economic Preview)

Heavy duty truck orders are at the lowest level in years, and although overall hiring in the U. S. increased by 287,000 in June, trucking lost 6300 jobs. Some of this of course, is because some drivers prefer to switch to other jobs when they are available. Even railroads reduced employment by 1600 jobs in June. Still, capacity is not an issue for now. For a supply chain manager trying to hold costs down, the next year should not be too troublesome.

There are two elephants in the room, however. If the economy does start to improve dramatically, the situation could change overnight. The other looming uncertainty is who will be our next president. By now in most election years, we start to see projected economic scenarios under the two possible presidencies. This year it is anybody’s guess.

Out of all this, Larkin reports one other disturbing fact. Because of the current loose supply chain dynamic, shipper/carrier collaboration is falling off. Shippers are rebidding freight to get lower rates. I believe this is a self-defeating philosophy. While this may yield a short term gain, ruining good carrier relationships will be a long term mistake. We have been there before.

Written By: Clifford F. Lynch