Predictions on the Transportation Sector
Initially published in Supply Chain Digest on February 12, 20192019 will be a year for shippers to regroup and recover from the Perfect Storm of 2018.
Carriers benefited from a "sellers market" in 2018, and few shippers were prepared for the double-digit carrier rate increases that blew out freight budgets and resulted in significant unfavorable variances. It was the year freight went from the docks to the boardroom and demanded that C-Level executives finally take a keen interest in strategies to reduce their company's freight costs. As shippers move to clean up after the storm, here are some things they will be addressing:
Volatility in the Marketplace
While rates went only one direction (Up!) last year, shippers will see significant rate fluctuations in both directions in 2019. What will drive these swings? Carriers are intent on maximizing their capacity and have the data and the technology to respond to market directions and change pricing "on the fly."
For example, in the fourth quarter of 2018, there was a 20% (plus) change in spot market rates for refrigerated truckload moves. So, if they have any excess capacity, carriers will quickly lower rates; if capacity is tight, they will quickly raise their rates. But beware, capacity remains tight in general, so even small blips on the transportation radar will have a disproportionately large impact.
Visibility - The Impact of Data and Technology
In 2019, carriers will continue to improve their use of data to analyze and understand their customers. In many instances, carriers already know a shipper's freight better than the shipper. In this post-ELD and dimensionalizer (for LTL carriers) world, they know how long a shipper is utilizing their assets and the space being consumed on their trailers. Carriers (especially LTL carriers) will continue focusing on density and dimensional based pricing to improve their operating ratios. And all carriers will penalize shippers for excessive detention/demurrage as they look for capacity that provides a suitable ROI.
Shippers who live in an "Excel" world (a.k.a. shippers who manage their transportation area with Excel spreadsheets) are in for a world of hurt in 2019. The volatility in the market will reward shippers who have the technology to assess and understand what is occurring in the marketplace, the impact of their freight on carrier networks, AND have the capacity to act quickly and decisively. Shippers who have accurate and reliable data, and who understand the impact of market conditions and carrier constraints, will lower their costs by taking advantage of appropriate sourcing strategies (Hint: Focus on targeted versus global RFPs). Shippers stuck in the land of Excel or Post-It notes will be overwhelmed and harshly penalized because they lack information and the ability to change transportation practices/processes that are affecting their freight costs.
A Voice at the Table
Since freight has moved into the boardroom, CEOs will be looking for answers. Last year, more than one-third of the S&P 500's CEOs cited freight as having a drain on their profits, so expect to see more companies get serious about adopting "Shipper of Choice" initiatives and addressing the inefficiencies within their company. This means transportation professionals will finally have a seat at the table. Consequently, they will have the opportunity to have input on the sales, operational and procurement issues that drive freight costs. But here is a challenge for transportation professionals: If you are going to have a voice going forward, you'll have to understand the issues so that you can provide meaningful input and a positive contribution. In 2019, expect your C-Level executives to be ready to listen and act.