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A North American Perspective on Global Trends

The quest for carrier capacity to meet demand may represent an opportunity to create high-performance relationships between 3PLs and logisticians.

by Jim Davidson

Given the opportunity to discuss the predominant trends impacting our business, I maintain a decidedly North American perspective. In North America the logistics industry represents more than one third of global supply chain activity, which is a big piece of the pie.

Last issue I highlighted the predominant trends affecting supply chain management. In our demanding business environment, some of these trends are more pressing than others. They provide tremendous opportunity for innovation and growth, but can inflict real hardship if not well managed. Clearly, shrinking carrier capacity is one of the most salient of these trends to shape our industry.

Every company, from manufacturer to retailer, knows the troublesome consequences of not getting goods shipped on time. Today, the most likely reason goods are delayed is due shrinking carrier capacity. The most common cause of shrinking capacity is the serious shortage of qualified drivers. Whether we like it or not, our whole industry depends on the well being of the men and women who drive the trucks. In every possible way they carry the load.

All forecasts indicate the driver shortage will continue to worsen. According to recent studies, the average age of a Teamster's driver is 57 years. As of 2004, truckers who were 55 years old outnumbered those less than 30 years of age, according to a Statistics Canada study. This indicates this industry will be hit with a large number of retirements in the next decade.

Regrettably, the industry will lose its most experienced employees and those who retire are not readily replaced. Truck driving poses a demanding lifestyle with long hours away from home. While some routes permit drivers to be home each night, frustrating experiences at border crossings, fluctuating fuel prices, increased insurance costs and government regulations all add to the daily grind that causes more drivers to leave the industry than to enter it and stay. Even though government-sponsored youth employment and apprenticeship programs have been launched to help alleviate the shortages over the long-term, the occupation of truck driver still lacks significant appeal for young people. After all, who encourages their son or daughter to become a truck driver?

Some suppliers, my firm included, address the issue of driver shortages by conducting ongoing advanced driver-training programs. We do our best to attract and develop the best qualified drivers, but until we can retain sufficient numbers, capacity will continue to decline.

What can a customer do to ease the pain of shrinking capacity? The answer requires a leap of faith and an attitudinal shift in how business is conducted. Begin by making a commitment to a worthy supplier and start disclosing information that is not typically shared with a supplier. Letting your supplier know about production forecasts, inventory planning, inbound and outbound volumes, as well as sharing the technology used to manage and communicate this information will allow your supplier/partner to be more proactive, make a corresponding commitment to your company, and enable them to customize their service to suit your company's requirements.

The best-case scenario evolves when a customer is willing to share the problem solving with their supplier. Challenge your supplier for specific solutions. If the next quarter's forecast has more than its share of ups and downs, encourage your supplier to help level things off. How can this be accomplished?

Accommodating the ebb and flow of fluctuating production demands is as easy as adjusting transit scheduling. Switch to an alternate mode of transportation and you can easily speed up or slow down the process. For instance, to slow down transit of materials, switch from trucks to intermodal or rail. Not only will you add a few days to the delivery schedule, you'll save money. Integrated rail and road systems are becoming more commonplace, more economical and a viable solution to shrinking capacity in the short term. (I'll provide more commentary on intermodal transportation in a future article.)

The long-term answer to shrinking capacity is to constantly improve performance. Push yourself and your supplier to get the results you need at the price you want. If there is no improvement, then consider changing suppliers. Look for a supplier who will become a full-fledged partner by helping to manage your supply chain. When you give a supplier the opportunity to be part of the problem solving process, outcomes becomes easier, less expensive and more efficient.

Perhaps the most unpredictable trend remaining is that of rising prices to the customer. Even the very best purchasing department personnel have difficulty managing rising supply chain costs. When a carrier requires an increase, I'd suggest you think twice about putting the business out for a bid. Auctions are increasingly risky. The customer sets the ground rules for the auction with no guarantee that the best-laid plans won't change an outcome that has a customer paying significantly more for essentially the same services. I know of one situation where a supplier requested an increase, the customer refused to pay and put the contract out for auction. In conclusion, the customer paid the same supplier well beyond what was originally asked for. Again, the benefits of establishing solid partnerships are paramount, if only to expedite the negotiation of a more amicable conclusion to a costly bidding process.

How good is your partnership with your supplier? Like any union, the arrangement requires hard work, open communication, trust and honesty. Make the commitment and investment and you will minimize any potential threats posed by shrinking capacity or rising prices. The rewards can be spectacular.