The strength of the economic recovery, at least in terms of U.S. domestic freight, was clear at last week’s NASSTRAC Logistics Conference. Attendance at the event was up by more than 100 to nearly 500 registrants, and the audience was well-divided between shippers and suppliers, whether trucking companies, freight brokers and logistics providers and technology firms.
The mood has shifted from utter despair in 2009 to a cautious optimism about the recovery in 2012. Volumes, especially industrial freight, are climbing, and forecast to increase modestly. Plenty of warning signs were on display at the event, however, enough to give shippers and carriers pause when considering what route to choose to get through 2012.
First, there’s the potential impact of a double-dip recession in Europe. UPS Freight’s Jack Holmes warned that the troubles of loss-racked container shipping lines could make waves far inland, affecting supply chains dependent on trucks for final delivery. Derek Leathers and John White of Werner Enterprises and U.S. Xpress detailed the mounting cost burdens on truckload carriers, especially the rising cost of drivers and equipment. Increasingly volatile and higher fuel prices cast a pall over the entire transportation industry.
And everyone took a kick at Washington and the steadily rising cost of complying with burgeoning truck safety regulations, costs TranzAct’s Mike Regan warned could outflank shippers, pushing transportation costs much higher than they expect.
No question, domestic surface transportation costs will rise. Investment analysts John Barnes of RBC Capital Markets and Ben Hartford of R.W. Baird forecast higher rates for truckload, less-than-truckload, intermodal and rail freight in 2012.
Truckload rates have outpaced LTL pricing over the past two years, but they face intense pressure on their margins from higher operating costs.
Hartford forecast truckload rates would rise 2 to 4 percent and LTL rates 2 to 5 percent in 2012, with domestic intermodal rates rising 2 to 4 percent and rail rates, 3 to 4 percent. Carriers say those price hikes may not be enough to allow them to reinvest in their business by paying drivers a better wage and replacing aging equipment.
But White, Leathers and other speakers said higher rates don’t have to lead to higher overall transportation expenses that many shippers say they can’t afford with consumer demand still weak, unemployment high and the long-term economic outlook uncertain.
“Rates are going to continue to go up,” Leathers told shippers, “but I don’t think that means your spend has to go up. We can work together to eliminate loads.”
A few years ago, no one would have expected to hear a trucking executive suggest working with shippers to eliminate loads, except those offered to competitors. But the worst recession since the Great Depression set changes in motion that are transforming transportation management at carriers and shippers and spurring the evolution of a more multimodal freight marketplace.
“Let’s take LTL into truckload and move truckload into intermodal,” Leathers said. “Let’s find ways to take costs out of the supply chain.” That’s a goal everyone can agree on.