Although leading indicators point to a continuing but slow U.S. economic recovery, the U.S. stock market has been roiled by the twin forces of political gridlock in Washington and the eurozone. The 2012 U.S. presidential election threatens to paralyze any financial stimulus at home, while eurozone economic turmoil continues over a possible Greek default, and the likelihood that financial unrest could domino into Ireland, Italy, Spain and Portugal all make for a very uncertain global economy.
As 2011 draws to a close and manufacturers, suppliers and retailers set their sights on the new year, here are some of the market forces they should take into account.
-- Presidential election year: The contest to America’s highest office promises to be tight, and it appears Washington gridlock will remain in place until the election is decided. This bodes for continued slow growth as Congress stymies federal stimulus initiatives.
-- Five-day delivery for the USPS: Although it lacks final congressional approval, the plan for the U.S. Postal Service to implement five-day delivery probably will go into effect in fiscal 2011. Despite its unpopularity among unions and many Democrats, the plan has the support of President Obama and could generate as much as $3.1 billion in annual savings. Under a five-day delivery schedule, mail would not be delivered to street addresses on Saturdays, and mail would not be collected from blue street collection boxes or Post Offices on Saturdays. There would be no Saturday pickup of mail from homes and businesses, but Express Mail would continue to be delivered six days a week. The new delivery schedule would have a profound effect on organizations that rely on USPS shipping or a combination of private shipping and USPS shipping.
-- Collusion and price-fixing allegations: In 2011, the Federal Maritime Commission and the European Commission investigated price collusion among ocean shipping lines. European and Asian lines are under the gun for violating antitrust rules, while U.S.-flag carriers are paying millions in criminal and civil cases over charges they fixed prices and fuel surcharges on shipping lanes to Puerto Rico. Railroads have been targeted, too. Oxbow Mining is suing Union Pacific Railroad and BNSF Railway, saying the railroads conspired to raise prices on customers such as the Colorado coal mine that Oxbow runs. Although Congress has discussed regulating railroad pricing more closely, it hasn’t approved any new rules. Railroads maintain they must charge higher rates to cover their costs and reinvest in their costly networks.
-- UPS’s and FedEx’s refusal to negotiate with third parties: Parcel shippers UPS and FedEx haven’t been exempt from price-collusion charges. Parcel shipping consultant AFMS last year sued both companies alleging they conspired to fix prices for parcel shipments by shutting third parties out of rate negotiations. The first hearing on the case is set for Jan. 13.
-- Fuel costs: The good news on the slow recovery is that oil prices are well below the panic prices of $115 a barrel. By early last week, benchmark crude again was approaching $100 a barrel, though prices at the pump were well off their highs amid slackening demand. Commodities forecasts are calling for continued slower demand as eurozone trouble crimps European growth and Chinese exports for the foreseeable future. The bad news is that this is just the kind of market condition that fuels complacency among shippers. With little indicator of how the market will fare over the next few months, take this time to:
1. Optimize every carrier contract: What terms and conditions can be improved today?
2. Benchmark pricing: Have you confirmed ó rather than assumed ó youíre paying the lowest price? Have you reviewed and justified every surcharge and accessorial?
3. Re-evaluate shipping method selection: Are you choosing higher-cost shipping methods when you could achieve the same delivery time for less?
-- Capacity concerns: With fuel costs so unpredictable, many shippers are turning to railroads to move their goods across the supply chain. However, container shortages threaten many of the efficiencies offered by rail. Rail container production has been lagging, creating a decrease in capacity. This may eventually drive up the cost of railroad shipping.
-- Natural disasters: On Aug. 28, Hurricane Irene swept up the Eastern Seaboard and wreaked havoc with widespread flooding and power outages. Nine short weeks later, a freak Halloween nor’easter again crippled the East Coast. Clearly, the increase in natural disasters is affecting supply chains, too. Winter snowstorms could very well inflict further damages in the months ahead.
Today’s supply chain organizations need more aggressive spend management to reduce costs and mitigate risk in shipping. Traditional tactics such as invoice auditing and refund recovery are great ways to cut shipping costs in a stable market, but the complexity of today’s shipping environment requires a deeper understanding of how to lessen the impact of industry, political and economic forces on corporate spending.
John Haber is founder and CEO of Atlanta-based consultant Spend Management Experts. Contact him at firstname.lastname@example.org.