TIME FOR A SECOND LOOK

As 2018 draws to a close, it is clear that the country will not see the improvements in infrastructure we have been promised for several years. Most recently, President Trump decided infrastructure improvement was a high priority and one of the first problems he would address when he moved into the White House. In May of 2017, Secretary of Transportation Elaine Chao said “the infrastructure plan is coming soon.” For whatever reason – Congressional stagnation, lack of leadership, or both – nothing has been done at the Federal level. Some states, out of frustration and/or critical need have increased state fuel taxes and used the funds for their own infrastructure needs.

It also seems clear that the truck driver shortage persists and is expected to do so for the foreseeable future. While some improvements have been made by increasing salaries and bettering working conditions, the American Trucking Associations (ATA) projects the current shortage at 50,000, expected to increase to 175,000 by 2026.  The ATA says that these shortages and rising fuel costs are still the major concerns of motor carriers. A JLL report indicated that C.H. Robinson truckload rates were up 21.5% during the first quarter of 2018.Underscoring these issues are the continuing capacity shortages in the industry. In some cases, these result from increasing expense or lack of equipment, but many serviceable tractors have been parked due to the shortage of drivers.

Meanwhile, many of us have been faced with the most significant change in the supply chain since 1980, the year rail and motor carriage were deregulated. The popular term for the development is the “Amazon effect”. Others call it the “Now Economy” However you choose to refer to it, it represents a momentous change in consumer buying habits and the services necessary to accommodate them. Last year, E-Commerce sales totaled $447M, and are expected to exceed $500M this year. By 2022, the total is expected to surpass $700M. Not only are more consumers buying on line, they are demanding more rapid deliveries – sometimes same day – and Amazon not only is accommodating this, they are encouraging it. Competitors are struggling to keep up and maintain their share of this huge market. On the surface it would appear that the challenge is limited to the retail industry, but that is not the case. The increase in small shipments is straining an already declining LTL capacity, increasing prices.

Obviously, if sellers are going to provide same day deliveries, distribution centers must be closer to the markets. Already, this has driven up real estate prices in major markets. A considerable amount of time and effort is being devoted to strategizing about how to handle these “last mile” deliveries efficiently and economically, but we cannot ignore the inbound movements. The truckload industry is feeling the same pains. If you have not done so, it may be time to take another hard look at intermodal. Service is far better than it used to be – faster and more consistent. It is less expensive than truckload; and during the past four years, railroads have made $442M in capital improvements.

Secondly, be cautious about the rush to the increasingly expensive major markets. As long as you are close enough to provide the necessary customer service, your real estate and labor costs will be less. Whatever you do, do not get overwhelmed by a problem that may have an easier solution than you think.

Finally, as you reflect on 2018, and plan for 2019, take some time to enjoy the holidays and be thankful for what we have.

Written By: Clifford F. Lynch