The U.S. trucking market faces especially challenging conditions as it heads into the second half of 2011. With economic growth improving only haltingly and transportation capacity getting tighter, shippers and carriers find themselves at cross-purposes. Carriers want greater profits (and that often means higher rates), while shippers seek the right balance between ensuring that they get the service they need and combating price hikes. Indeed, full truckload rates are already on the rise in the United States. We expect to see a price hike in the range of 3 to 6 percent, excluding the impact of fuel surcharges.
Historically freight-price increases have been kept in check by the comparatively low barriers to entry or expansion in the truckload freight market as compared to other industries. Can we therefore expect to see price increases capped during this recovery and then reversed as new carriers add capacity? The shortterm answer almost certainly is no. That's because added regulation, oil price inflation, resurgent driver wages, and driver shortages are expected to drive up costs and keep capacity tight.
One indication that rates will remain high is the current trend in freight expenditures versus shipment volumes. Prices declined severely in 2009 as volumes dropped and carriers sacrificed margins in order to keep market share. Although shipment volumes have increased, the Cass Information Systems Freight Index shows freight expenditures outpacing shipment increases in 2010, with that tendency intensifying in Quarter 1 of 2011.1 (See Figure 1, which shows the Cass Index chart with an expenditures-to-shipment ratio added.) Only part of this increase was attributable to fuel costs; the rest was due to price increases sticking.
In response to the increase in shipment volume, U.S. truck capacity is rebuilding. Actual monthly production for Class 8 truck orders averaged 12,000 to 14,000 units/month in 2010, with the production rate accelerating at the end of that year. Sales of heavyduty trucks continue to recover and are even surpassing the estimated industry replacement rate of 14,000 to 16,000 units/month.2 But while this means capacity will increase, it won't be enough in the short term because of the accumulated deficit from carriers delaying purchases over the last three years.
Additionally, both shippers and carriers will struggle to deal with a worsening driver shortage. The total number of employed truckload drivers dropped from a peak of just under 500,000 in 2007 to just over 400,000 in January 2011. Driver wages have recently increased 3 to 4 percent after a drop of about 10 percent over the last two years.3 Only the weakness in general employment levels, especially in the construction industry, has kept driver wages from increasing even more. Look for wages to keep rising and for the trend to accelerate when construction recovers. At the same time, the Compliance Safety and Accountability (CSA) 2010 regulation will cause trucking companies to increase their driver safety screening, which will further slow hiring and reduce the driver pool.
Finally, carriers are being very cautious about adding capacity or making additional investments. The bankruptcy rate for carriers was lower in 2009-2010 than in previous recessions because assetrecovery prices dropped to levels that were unacceptable to banks. That meant more trucking companies survived than expected. But carriers were shaken by their near-death experience in 2009; as a result, they are being more cautious in 2011 and will wait until their fleets have reached capacity at higher prices before they consider expansion. Furthermore, recession- scarred banks will keep a lid on carriers' ambitions with tighter lending standards.
The importance of value creation
So how can logistics leaders get capacity assurance at a price they can defend? And how can carriers maximize profits without appearing to price-gouge?
The answer may lie in less-adversarial relationships and a greater focus on overall value creation. Transactional relationships that emphasize opportunistic bidding and capacity switching by shippers and carriers alike generally are on the wane and are even less appropriate for shippers in these capacityconstrained times. Instead shippers and carriers need to turn to a relationship model that emphasizes partnering and value creation while still putting lanes out to bid. This will assure reliable capacity for shippers and steadier, more profitable business for carriers.
The idea of achieving a value-creating partnership while still going out to bid may seem paradoxical. However, we have seen it work, with the shipper achieving 5- to 15-percent savings while the carrier increases profitability. The sourcing process no longer involves bidding wars that focus heavily on price and are followed by "winner's remorse." Rather, it is used to discover and create previously unseen value from carriers' proposals. For example, an incumbent carrier may keep the same overall shipment volumes but find some volume re-allocated to lanes where it is more profitable and therefore more competitive.
Here are four examples of how shippers and carriers can collaborate to create greater value and mutual gain.
• A broker monitors a shipper's needs on a lane and moves shipments from truckload to intermodal or even to boxcars when it knows the shipper can accept a longer transit time (and for boxcar, the transloads).
• A shipper commits volume to a carrier that can use that shipment as a backhaul for another shipper. The carrier is assured busy trucks on both hauls and can be more competitive.
• A carrier that has a surplus of trailers from a recent downsizing can drop trailers free of charge. The shipper benefits from having a pool of drop trailers instead of having to expand storage capacity. The carrier, in turn, is assured a better-paying lane and can earn more with its power units.
• A carrier coming out of a zone with low outbound volumes (for example, Florida) can offer extra capacity at very short notice, helping out a customer while being able to charge more than the spot backhaul rate.
The simple lesson is that just as the shipper that relies on low-ball bids will come up short on trucks in a capacity crunch, the carrier that relies on price increases to become more profitable will lose to the carrier that creates more value for the shipper. Clearly, shippers and carriers will face challenges in 2011 and beyond. But if value-seeking approaches and recent experience are any indication, collaboration and creative solutions can minimize—and possibly reverse—market-driven price increases.
Endnotes: 1. The Cass Freight Index is available at www.cassinfo.com/frtindex.html. 2. Morgan Stanley Research, Proprietary Freight Index, April 24, 2011, Exhibit 18. 3. Morgan Stanley Research, Exhibits 22-24.
In the face of campaign pledges by Donald Trump to boost tariffs on imports, many U.S. business interests are pushing back on that policy plan following Trump’s election yesterday as president-elect.
U.S. firms are already rushing to import goods before the promised tariff increases take effect, to avoid potential cost increases. That’s because tariffs are paid by the domestic companies that order the goods, not by the foreign nation that makes them.
That dynamic would likely increase prices for U.S. consumers as importers pass along the extra cost in the form of price hikes, according to an analysis by the National Retail Federation (NRF). Specifically, Trump’s tariff plan would boost prices in six consumer product categories: apparel, toys, furniture, household appliances, footwear, and travel goods. “Retailers rely heavily on imported products and manufacturing components so that they can offer their customers a variety of products at affordable prices,” NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said in a release. “A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately comes out of consumers’ pockets through higher prices.”
The rush to avoid those swollen costs can already be measured in the form of rising rates for transporting ocean freight, as companies start buffering their inventories before the new administration officially announces tariff hikes. Transpacific rates are still $1,000/FEU or more above their April lows, showing increased ocean volumes and climbing rates generated by shippers’ concerns about supply chain disruptions including port strikes and the Trump tariff increases, supply chain visibility provider Freightos said in an analysis. "The Trump win may start shaking up supply chains even before he takes office. Just the anticipation of higher tariffs may lead importers to pull forward shipments, creating a preemptive freight frenzy," Judah Levine, Head of Research at Freightos, said in a release. “Frontloading will cause freight rates to feel the heat as importers race to dodge the extra costs, similar to what took place with Trump’s tariffs on Chinese goods in 2018 and 2019."
Another group sounding a note of caution about international trade developments was the Global Cold Chain Alliance (GCCA), a trade group which represents some 1,500 member companies in more than 90 countries that provide temperature-controlled warehousing, logistics, and transportation. “We congratulate President Trump on his election. We also congratulate all those who have been elected to the U.S. Senate and House of Representatives,” GCCA President and CEO Sara Stickler said in a statement. “We are also committed to promoting the growth of exports from U.S.-based food production and broader manufacturing sectors. We will engage constructively in the policy discussion about future trade policy and continue to make the case for the importance of maintaining balanced and resilient trade routes for food and other temperature-controlled products across the world.”
Businesses in the European Union (EU) were likewise wary of tariff plans, judging by a statement from the VDMA, a trade group representing 3,600 German and European machinery and equipment manufacturing companies. "Donald Trump's second term will be a greater challenge for German and European industry than his first presidency. We must take his tariff announcements seriously, in particular. This will once again put a noticeable strain on transatlantic trade and investment relations," VDMA Executive Director Thilo Brodtmann said in a statement. “The USA is and will remain the most important export market outside the EU for mechanical and plant engineering from Germany. Our companies offer the products required to implement the re-industrialization of the USA that Donald Trump is striving for. The VDMA's overall outlook for the American market therefore remains positive."
In addition to its flagship Clorox bleach product, Oakland, California-based Clorox manages a diverse catalog of brands including Hidden Valley Ranch, Glad, Pine-Sol, Burt’s Bees, Kingsford, Scoop Away, Fresh Step, 409, Brita, Liquid Plumr, and Tilex.
British carbon emissions reduction platform provider M2030 is designed to help suppliers measure, manage and reduce carbon emissions. The new partnership aims to advance decarbonization throughout Clorox's value chain through the collection of emissions data, jointly identified and defined actions for reduction and continuous upskilling.
The program, which will record key figures on energy, will be gradually rolled out to several suppliers of the company's strategic raw materials and packaging, which collectively represents more than half of Clorox's scope 3 emissions.
M2030 enables suppliers to regularly track and share their progress with other customers using the M2030 platform. Suppliers will also be able to export relevant compatible data for submission to the Carbon Disclosure Project (CDP), a global disclosure system to manage environmental data.
"As part of Clorox's efforts to foster a cleaner world, we have a responsibility to ensure our suppliers are equipped with the capabilities necessary for forging their own sustainability journeys," said Niki King, Chief Sustainability Officer at The Clorox Company. "Climate action is a complex endeavor that requires companies to engage all parts of their supply chain in order to meaningfully reduce their environmental impact."
Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.
Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.
The tool leverages data from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to project scores to varying locations using those eight category indicators: tropical cyclone, river flood, sea level rise, heat, fire weather, cold, drought and precipitation.
The Climate Risk Scores capability provides indicator risk projections for key natural disaster and weather risks into 2040, 2050 and 2100, offering several forecast scenarios at each juncture. The proactive planning tool can apply these insights to an organization’s systems via APIs, to directly incorporate climate projections and risk severity levels into your action systems for smarter decisions. Climate Risk scores offer insights into how these new operations may be affected, allowing organizations to make informed decisions and mitigate risks proactively.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” Jon Davis, Chief Meteorologist at Everstream Analytics, said in a release. “We’ve consulted with the world’s largest brands on the top risk indicators impacting their operations, and we’re thrilled to bring this industry-first capability into Explore to automate access for all our clients. With pathways ranging from low to high impact, this capability further enables organizations to grasp the full spectrum of potential outcomes in real-time, make informed decisions and proactively mitigate risks.”
Third party logistics provider (3PL) C.H. Robinson has applied generative AI tools to automate various steps across the entire lifecycle of a freight shipment, the Minnesota company said last week.
C.H. Robinson said it created AI-based technology that reads incoming email then replicates tasks a person would do, including giving customers a price quote, accepting a load, setting appointments for pickup and delivery, and checking on the load in transit. The company has used the approach to automate more than 10,000 of those routine transactions per day, allowing shippers who use email to get the same speed-to-market and cost savings as customers who use C.H. Robinson’s online platform.
After starting with price quotes, the company said it has applied generative AI to increasingly complex tasks. “We announced in May that we’d been using our new tech for emailed price requests. Within a few short months, we created new models to automate more shipping steps and have already implemented them at scale,” Arun Rajan, the company’s Chief Strategy and Innovation Officer, said in a release. “This a major efficiency breakthrough for the industry and for supply chains around the world. When you think about retailers that need hundreds of different products on their shelves or automakers that rely on just-in-time delivery for the 30,000 different parts in a car, saving hours and minutes on every shipment matters.”
The technology also saves time, cutting the task for a person to take care of an emailed load tender from as much as four hours to 90 seconds, according to Mark Albrecht, the company’s Vice President for Artificial Intelligence.
“Once a person got to the email in their inbox, it still took an average of seven minutes to manually enter all the shipment details into our system – and that’s for a single load,” Albrecht said. “If the email tendered us 20 loads, a person would be stuck manually entering the information one load at a time. With generative AI, we can process all 20 loads simultaneously in the same 90 seconds. That’s an enormous time savings, especially when you consider we’ve scaled this to thousands of shipment orders per day just since June.”
An overwhelming majority (81%) of shoppers do not plan to increase their holiday spend this year over last year, revealing a significant disconnect between retail marketers and shoppers in the weeks before peak season, according to online shopping platform provider Rakuten.
That result flies in the face of high confidence levels from retailers who have been delaying their marketing spend, as 79% of marketers are optimistic they will reach holiday sales objectives, and 65% are timing their spend as late as November.
However, consumers are nervous about supply chain disruptions. Almost half (42%) of shoppers have started their shopping early to avoid shipping delays, while 32% plan to do more shopping in-store to avoid potential delays. The results come from a survey conducted online within the U.S. by The Harris Poll on behalf of Rakuten from Sept. 5 – Sept. 9 , among 2,100 consumers aged 18 and older and 101 retail marketers.
"There's a clear disconnect between marketer perception and consumer realities, but this presents a unique opportunity for retailers to capitalize on the shortcomings of their competition," said Julie Van Ullen, Chief Revenue Officer at Rakuten Rewards. "As shoppers plan to spend less overall, there become fewer opportunities for retailers. This makes it evermore important for retailers to invest in strategies that set them apart throughout the entire holiday season.”
Three reasons behind the diverging views are:
Inflated prices. Even with softening inflation rates, nearly half (46%) of shoppers report that it will have the greatest impact on their holiday shopping strategy. Conversely, only 20% of marketers believe that to be true.
Election nerves. Shoppers anticipate that the upcoming election will have an impact on inflation, with 57% believing it will increase.
Weak brand loyalty. A majority of marketers (98%) believe shoppers will remain loyal to brands, but fully 42% of shoppers indicate they will prioritize finding the lowest prices by trading down to lower-quality brands and products for more affordable alternatives.
"Loyalty is up for grabs this holiday season, and success for retailers will hinge on offering value beyond just reduced prices," Julie Van Ullen, Chief Revenue Officer at Rakuten Rewards, said in a release. "Our research revealed that shopper concern extends beyond just price, and retailers will need to address those concerns with comprehensive deals that include several table-stake incentives. Incentives like free shipping, buy now pay later services, and elevated Cash Back will be important for maintaining a loyal shopper base."