Shippers Eye Investment for Growth

Cargo interests are gradually shifting from last year's recession mentality to embrace growth strategies, but their investments in supply chain improvements are still constrained.

"People are being tentative," said James E. Butts, senior vice president of C. H. Robinson Worldwide.

The number one goal of cargo interests is still to realize transportation savings, and the second most important goal is to achieve greater visibility into their supply chain, Butts told the Los Angeles Transportation Club.

However, investing in information technology is necessary to achieve both of these goals, and over the past year companies spent very little on IT. "That may change in 2010," Butts said.

Companies want to have enough product on hand to meet demand, but at the same time they want to reduce their inventory carrying costs. This requires better inventory management and choosing carriers that will deliver the product when it is needed.

Carrier choice is risky today because many trucking companies have not invested in new capacity for more than a year, and they had to let drivers go during the recession. The future of some ocean carriers is also uncertain.

The economy will turn around, and if demand begins to grow rapidly, cargo interests may encounter a capacity shortage, Butts said.

During such times of uncertainty, some shippers chose to outsource supply chain functions. They rely on third party logistics providers to invest in information technology, introduce innovative measures to reduce transportation costs and manage carrier choice so they have sufficient capacity if demand surges.

Third-party service providers that prosper in this environment will not simply do what their customers tell them to do. They will go "beyond brokerage" and will bring meaningful new strategies to their customers, Butts said.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.