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Transportation Management Trends: The Gathering Storm

The current environment shaping transportation has often been likened to the perfect storm. These trends threaten to turn our view of transportation and logistics on its head unless major changes are forthcoming in the near future. Here's a look at the primary changes converging on the industry to help you act proactively.

by Theodore P. (Ted) Stank and J. Thomas Mentzer

The transport management landscape has undergone dramatic change in the last 26 years. Beginning in 1980, after nearly six decades of regulation characterized only by glacial change, the transportation environment has been in a constant state of flux. The first 20 years of deregulation challenged managers with the task of confronting increased safety and social regulation, escalating customer expectations, increased globalization, improved technologies, labor and equipment shortages, and industry mergers and consolidation. To their everlasting credit, transportation managers were able to achieve staggering improvements that helped reduce the percentage of the U.S. Gross Domestic Product spent on logistics almost in half during that period (from over 16 percent in 1980 to just under 9 percent in 2000). Managers from that era have many interesting tales regarding exactly how those changes were accomplished.

The degree of change experienced in the transportation environment from 1980 to 2000, however, pales in comparison to the changes that have occurred since 2000. While some of this change can be correlated with the changing sociopolitical landscape emerging as a result of 9/11, many of the trends which transportation managers must consider today have much longer histories. Regardless of their genesis, the current environment impacting transportation has frequently been likened to the perfect storm - a reference to the interaction of a number of unique but related trends that threaten to turn our view of transportation and logistics on its head unless major changes are forthcoming in the next several years. We like to call this, instead, the Gathering Storm - because the Perfect Storm will not be perfect (a bad thing in this case) if we recognize the storm signals that are gathering and address them. The following list highlights the three most critical elements of the Gathering Storm and identifies some of the primary causes for them.

  1. Fuel prices - The $1 increase experienced at the pumps over the last year hurts more than just the average consumer. Fuel is the second largest expenditure for most transportation companies (behind labor; and it is the most expensive for fuel-intensive modes like air). The increase has dramatically changed relative transport economics and the logistics decisions that it influences. The major causes of the increase include the political instability of the Middle East, damage to refining capacity from the series of natural disasters that have rocked the U.S. Gulf coast, and increased consumer demand (9/11 sent people to the roads in record numbers). An interesting side note is that fuel prices are rising at the same time that regulation is increasing emissions standards for truck engines, challenging engine makers to develop technology that provides the same towing power with similar fuel efficiency.
  2. Driver shortage - Transportation experts estimate an approximate 80,000 driver shortfall given today's demand requirement, with some experts estimating the shortage will grow to 120,000 by 2010. The shortage stems from both economic and demographic trends, including a diminishing pool of available driver talent due to increased competition among driving jobs. Competition with the construction industry is also increasing (the greatest competitor for those likely to take jobs as truck drivers and railroad engineers is the construction industry; so the boom in home building and office construction significantly impacts the available driver pool). The shortage may be exacerbated by stiffer driver hours of service regulations that can have the effect of further reducing available driver work hours
  3. Capacity constraints - The United States has not enjoyed unified national transportation spending and development policy since 1950's. Estimates are that the latest transportation spending bill, while mind-bogglingly enormous, is still not enough to cover the basic maintenance of existing road and bridge systems, let alone make the improvements necessary to deal with the level of traffic experienced today. If you don't believe us, drive your new fuel efficient hybrid sedan on any one of our interstate highways and tell us how comfortable you feel when you are hemmed-in on all 4 sides by tractors towing 53 foot trailers at 70 plus mph on uneven lanes.

And don't look to rail to relieve the problem. Until recently, railroads had not made enough money to cover the cost of capital investment for over 20 years, resulting in the retirement of track and merger/consolidation to make a profit. Then consider that it costs millions per mile to build new rail lines. Rail has figured out that better utilizing, and in some cases shrinking, its present network and rolling stock capacity is a better formula for profitability.

Further, port facilities are inadequate to handle the volume of freight growth resulting from the historic levels of foreign trade imbalances, predominantly caused by growth of trade with China. On any given day there are dozens of ships anchored in the harbor at the ports of Long Beach and Los Angeles waiting for dockside availability. Such delays are caused by inefficient labor to offload and insufficient road and rail access to facilitate the movement of containers from portside facilities.

Finally, increased security regulations as a result of 9/11 are further slowing movement through ports, and promises from regulatory bodies to increase the number of inspections could cripple the flow of international freight. Although the situation is more dramatic in maritime ports, it is similar to that experienced in airport facilities.

So how are we to deal with this "Gathering Storm" and prevent the realization of the "Perfect Storm?" Below is a list of major implications to the shipping community and the broader economy as a result of the elements of the storm.

The Perfect Storm cannot be prevented by ignoring it. It can only be managed by recognizing the signs of the Gathering Storm and taking proactive actions to lessen the impact on individual companies, supply chains, and the economy (both U.S. and global) as a whole.