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  1. localdriver

    localdriver Member

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    « The Top 10 Freight Transportation Events of 2008 | Main

    A Look Ahead to the World of Freight Transportation in 2009
    As 2008 draws to a close, it is time to look ahead to the trends that are likely to shape the world of freight transportation in 2009. Here are some events to watch.

    1. Investing in Infrastructure to create Jobs, Jobs, Jobs

    President-Elect Obama and Prime Minister Harper are currently preparing their economic stimulus programs to give their respective economies a lift. While there has been lots of talk about investing in infrastructure in recent years, we will finally see a significant injection of funds into road and bridge construction and repair in 2009. This development will create as a by product, over time, much needed jobs in the transportation industry as supplies are transported to jobsites across North America.

    2. Cash will be King and Queen

    Tight credit means that companies with strong balance sheets are in the best (defensive) position to weather the economic storm. They will also allow these companies to go on the offensive and be more opportunistic than others by taking business from weaker foes or making “tuck in” or strategic acquisitions.

    3. Back to Basics

    Shippers and carriers will be focused on what they do best. Non-core assets will be divested. Non-core functions should be outsourced to those that can perform them more cost effectively. It will be all about taking costs out of the supply chain or transportation company in 2009. To save money on freight, the best approach is to use the lowest cost modes, truckload instead of LTL or intermodal instead of truckload whenever possible.

    4. Crisis Management Teams will take Center Stage in Many Companies

    Many shippers will be forming crisis management teams, composed of logistics, sales, manufacturing and customer service to identify vulnerable lanes where the loss of a core carrier could mean service disruptions and failures to key clients.

    5. “The Paradox of Thrift”

    Many consumers across North America are feeling the pinch brought on by job losses, job loss anxieties, declining home values, declining stock/bond portfolios, declining 401K’s and RRSP’s. They are feeling poorer because of the significant declines in their net worth. This fear is having a profound effect on holiday shopping. Fearful consumers save more and spend less. Less money flows into the economy, contributing to the slide into recession. This causes further reductions in incomes and less spending, providing momentum to the severity of the recession. The current consumer negativity will continue into 2009.

    6. Shipper Consolidation

    Recent press reports have focused on the closure of certain shifts and the extension of holiday shutdowns at various automotive plants, the closure of specific (e.g. Office Depot) retail outlets and the chapter 11 filings of various large companies (e.g. Circuit City). It is clear that a number of retailers have gone to deep discounting (e.g. 25%, 50%, 70%) across some or all of their product lines to stimulate sales during the latter months of 2008. Business volume declines in the first quarter of 2009 will hasten the closure of more poor performing retail outlets and manufacturing plants. Watch for some big name shippers to exit the market during the course of the first quarter of 2009.

    7. Transport Company Consolidation

    Freight capacity contracted by a reported five percent in 2008. The major casualties were DHL’s exit from the U.S. domestic small parcel market and the closure of a number of small trucking companies and a few mid sized firms (e.g. Jevic, Alvan). Watch for the speed of consolidation activity to hasten in 2009 as companies find it too difficult to adjust their costs to the declining freight volumes. Watch for some big name players to falter. Look for some companies to withdraw from certain markets and/or restructure to focus their efforts in those areas where they are best able to compete. The LTL sector is particularly vulnerable with their extensive (and expensive) terminal networks as volumes and shipping weights decline.

    8. Expect the Unexpected

    With some publicly traded truck stocks down 50 to 90 percent in value, watch for some companies to make bold acquisition moves.

    9. Finding a Treatment for “Affluenza”

    The Canadian Broadcasting Corporation (CBC) recently coined this term to refer to the many consumers who are trying to make do with less, trying to place limits on their spending during this holiday season. In other words, they are trying to treat the “affluenza” that has swept across North America over the past few decades. The result is a movement to more discount shopping and more controlled spending. As consumers try to stretch their purchasing dollars, watch for shippers to try to stretch their freight dollars. This will make for a difficult freight rate negotiation environment in 2009.

    10. “Capacitization” will prevent service disruptions

    As carriers falter or cut back on service to weather the financial storm, shippers will be faced with the critical task of maintaining the viability of their supply chains. To offset these vulnerabilities, shippers will be “over-capacitizing” their freight networks. They will be seeking redundant carriers on specific lanes to ensure their supply chains operate in an uninterrupted mode. They will also seeking to diversify their carrier portfolios to reduce risks across all modes and lanes. Logistics managers will need to focus on monitoring their carrier scorecards for unusual delays, changes in lead times, requests for quicker payment intervals or other telltale signs that a carrier in distress.

    11. Paying a Premium for Capacity

    Smart shippers are realizing that as the recession comes to an end, there will be much less truck and rail capacity. To lock up capacity in the future, forward thinking shippers will be paying a premium for truck and rail capacity. While this may not coincide with current market conditions, the departure of some name brand carriers in the first quarter will cause a rethinking of freight rate negotiating strategies.

    12. Shipper – Shipper, Shipper - Customer and Shipper – Carrier Collaboration

    This is a trend that has been evolving over the past decade. In 2009 it will progress to a new level. To reduce vulnerability, secure capacity and control freight costs, shippers will more actively seek partners with whom to pool their freight. This may precipitate the development of more industry associations and closer working relationships with carriers and freight management companies that can help pool freight in specific geographic areas or create round trips that shippers cannot create on their own. It may also result in more vertical integration or at least closer financial arrangements between the various supply chain partners. Carrier partners will likely be evaluated on the basis of the shipper collaboration proposals they can bring to the table.

    13. Logistics and Finance Team Up

    Despite the efforts of the Federal Reserve to inject liquidity into the U.S. financial system, credit remains tight. Funds for new warehouses, new factories, new product launches and new personnel will come under increased scrutiny in 2009. The credit crisis is causing every company that uses borrowed funds for project financing, bridge loans or working capital to revisit their plans and processes to determine if alternate arrangements can be made. This will result in changes to supply chains and staff cuts. It will place more pressure on supply chain professionals to cost justify every initiative and drive any unnecessary costs out of the system. This will bring the financial and logistics folks closer together than ever before.

    14. Freight Rate Benchmarking will rise to Prominence

    In an era of challenging financial conditions, it is critical for shippers to be paying at or below market freight rates unless there is a demonstrable value in delivering a premium service at a premium price. Freight rate benchmarking is a service that is widely available but in limited use in the United States, and is in minimal use in Canada. It is a service that is right for the times. It allows a shipper to obtain market rates 24/7 on any lane in North America, thereby ensuring that they keep their costs to a minimum.

    15. Six Key Indicators to Watch

    Here are six key indicators to watch. These KPI’s will tell us if we are moving out of the recession. They are:
    The stock market indices - These forward leading indicators told us we were heading into a severe recession and they will tell us when we are coming out of it.
    The jobless percent - When the jobless numbers start to decline, this will tell us that there are more people with money to spend.
    Consumer confidence - Fearful consumers do not spend money. An upturn in consumer confidence will signal an upturn in spending. Confident consumers will start buying homes and cars.
    Auto sales growth – This industry is very important to the economies of Canada and the United States. We need to see evidence that consumers are buying cars again.
    New home construction - The sub prime mortgage mess led us into this recession. This KPI will signal that consumers are again buying homes and suggest that the economy is on the upswing.
    GDP - This indicator tells us that business is expanding.

    16. Slow and Unsteady

    The first quarter of 2009 will be brutal. As the economy continues to contract, job losses will continue to mount. The economic stimulus combined with low interest rates will begin to spur some activity upswing in business activity. However, the increase in freight activity over the balance of 2009 will be modest at best. It will get worse before it gets better but it will get better.

    17. Expedited Freight Takes a Hit

    Expedited freight will take a hit in 2009 as knowledgeable shippers realize that there are big cost savings in moving freight via standard ground or intermodal services.

    18. An upswing in “Off shoring”

    Many companies began to rethink their supply chains as the U.S. dollar declined and fuel prices skyrocketed. We now face an ocean shipping capacity surplus with declining fuel costs, falling commodity prices, sinking freight costs and a rising American dollar. While economic activity has moderated, the economics of off shoring have greatly improved in recent months.

    19. Non-asset based logistics companies are in a strong position

    Non-asset based companies have the most flexibility. They can mix and match modes and carriers to provide capacity and competitive costs. This should be another good year for well managed non-asset based 3PL’s and transportation management companies.

    20. Green is Good and getting Better

    The Green movement will continue to evolve as companies search for ways to become more environmentally friendly while improving their bottom lines. The ocean carriers use the term “slow-steaming” when they reduce vessel speeds to lower fuel consumption. Shippers should take advantage of these reduced fuel costs in their freight rate negotiations.

    Dan’s forecast for 2009

    I am not an economist. Most economists are predicting a turnaround beginning anywhere from the third quarter of 2009 to somewhere in 2012. Nobody knows for sure. This is how I see the world.

    Some serious errors and misjudgements were made that led us into the current financial crisis. We are all in a negative “funk.” Everywhere you go, people are walking around with downcast faces and worried looks. There is a huge lack of confidence in the world today.

    There will be a new administration coming to power in America in January of 2009. President-elect Obama has surrounded himself with some of the best economic minds around. The arrival of Mr. Obama in the White House will be viewed as a positive development around the world. He was elected on a mandate of change and his administration will take action. The large financial stimulus package coupled with the monetary policies of the Federal Reserve will move the U.S. economy in a positive direction. Everyone is looking for good news, for signs of encouragement.

    Many retailers will start 2009 with unsustainably low inventories. They will need to restock their inventories. Unemployment will be at about 7 percent, not 25 percent as it was in the Great Depression.

    Canada and the United States are strong, stable countries. We have some very talented and determined people who will lead us out of the current mess. Just as we are all feeding on the daily dose of negative news from the various media sources, we will feed on the positive news as these financial initiatives take hold. I look for the North American economy to begin to trend upward in the third quarter of 2009. This may be a bit of wishful thinking but I am optimistic that the beginnings of a turnaround will manifest themselves during the latter part of next year.

    To the many readers of this blog a sincere thank you for your feedback and suggestions in 2008. They are all much appreciated. Please keep them coming. I wish all of you happy holidays and a healthy and prosperous 2009. Keep on trucking!

    Dan Goodwill
    Dan Goodwill & Associates Inc.

    Posted by Dan Goodwill on December 20, 2008 9:36 AM | Permalink

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