Demand uncertainty, price volatility and shorter product cycles have focused corporate attention on transportation strategies like never before, according to a senior executive at C.H. Robinson Worldwide.
“The transportation supply chain is no longer a back-office function. It is a corporate advantage,” Scott Satterlee, senior vice president of transportation at the third-party logistics provider, told the Los Angeles Transportation Club Tuesday.
Rapid change is focusing increased attention on both supply and demand forces. Because of uncertainty surrounding consumer demand, companies are maintaining low inventories. Product life cycles are shorter, and product loyalty has diminished, Satterlee said.
On the supply side, these forces are resulting in cost and pricing volatility. Fuel prices can change quickly and dramatically. Capacity in the trucking sector is challenged because of driver shortages and regulatory demands, including possibly revised federal hours-of-service requirements for drivers, which are scheduled to take effect in July.
Rising labor costs resulting from the need to attract and keep qualified drivers are a major concern for motor carriers. In fact, some trucking companies say the need to increase driver wages is their top concern today, Satterlee said. “As wages increase, this creates pressures in other areas,” he said.
The need to reduce supply chain costs is leading some companies to outsource their transportation planning and procurement. Near-shoring of production is more popular today as a way to cut transportation costs and reduce transit time to destinations.
Rate negotiations may no longer be a once-a-year exercise, but rather an ongoing effort to achieve the most competitive rates available. Transportation mode conversion is a growing option to drive down costs, Satterlee said.
In the macro economy, the world’s population is becoming highly urbanized. More than half of all people will live in cities within the next five years, and there will be at least 23 cities with a population of 10 million or more, compared with 10 mega-cities in 1975, he said.
“The world is growing. Industry is changing. There are greater pressures, but also greater opportunities in transportation,” Satterlee said.