A stronger economy in 2014 could mean tough choices ahead for many shippers, with pricing volatility and spot equipment shortages potentially disrupting supply chains, Penske Logistics warns.
“It’s clear that volumes are improving and that creates challenges,” Andy Moses, senior vice president of global products at Penske Logistics, told the JOC. “Trucking isn’t adding capacity quite as fast as volume is growing,” he said. “That creates upward movement in rates and at times potential equipment shortages.”
Moses expects modest trucking price increases in 2014. “We wouldn’t be looking at anything like the 5 percent range, but 1 or 2 percent sounds believable,” he said. “But there are niches where we could see more volatility, pockets that flare up.”
Logistics managers unprepared for volatility could find themselves in a tough spot, he said. “You can do a fantastic job running your supply chain, but if freight rates go up 3 or 4 percent, for a large shipper, that can mean several million dollars off your bottom line. The board of directors isn’t going to say, ‘Aw, shucks.’”
How high truck pricing might climb in 2014 depends on the strength of the economy and the limits of truck capacity — both open questions at this point. Economists are debating whether weaker-than-expected indicators in manufacturing and job growth January can be blamed largely on the impact of severe weather in what is typically a slow month post-holidays or reveal greater underlying weakness in the U.S. economy.
Based on the freight volumes moving through its customers supply chains, Penske Logistics is still “cautiously optimistic.”
“Overall the economy is more encouraging,” Moses said. “We’re not racing up and down the halls high-fiving each other, but specific sectors we play in very significantly are doing better, automotive being one. Food and beverage and pharmacy, convenience, these are some of the verticals we see doing well.”
Truck capacity is tightening perceptibly, Moses said, partly because of increased freight demand but also because severe winter storms in December and January caused sporadic shortages of trucks, trailers, chassis and rail equipment.
“There have been real disruptions in supply chains because of these events,” Moses said. “We’ve seen distribution centers where two-thirds of the workforce didn’t show up because they couldn’t get to work. We’ve seen a significant number of retail outlets just being closed” for the duration of a storm and post-storm cleanup.
Shippers in many locations are working harder to find trucks, he said. “It’s not uncommon for shippers to be going deeper into their routing guide to get freight moved. A lot of shippers we work with can only handle a certain number of carriers effectively, and then they’ll turn to brokers. It’s a very active environment.”
Supply chain disruption caused by winter storms could be a harbinger of capacity problems shippers might face in the spring, when imports and demand pick up pace and produce season kicks in. Beyond that, Moses sees greater demand for rapid replenishment of “fresh delivery” products adding to pressure on truck capacity.
“More and more often, people want to be able to walk into a convenience store and get a fresh sandwich at 2 a.m., or sushi at 10 p.m.,” he said. “They don't want a salad that's brown. That means rather than making deliveries every other day or once a day, we may have to hit that convenience store twice a day.
“Shippers are investing in this fresh delivery business, and even segregating it from their other supply chain or broader distribution activities,” said Moses.
Reading, Pa.-based Penske Logistics taps capacity through parent company Penske Truck Leasing. “We have several thousand vehicles and drivers on the road every day, and we maintain relationships with thousands of carriers,” Moses said. “Ultimately, we have to move our customers’ freight and keep supply chains moving in the right direction.”
Shippers need to help by making their freight “more attractive to carriers,” he said. “Smart shippers have the opportunity to mitigate some of the cost increases” Penske Logistics sees coming down the road. They can start by “making more of their freight drop-and-hook,” where a truck driver arrives, drops off a trailer and picks up another fully loaded one, “versus a live load situation where a driver has to wait around for a few hours” to be unloaded or loaded at a shipper’s dock.
“Some large shippers we’ve talked to are doing things aggressively along those lines,” Moses said. He also urged shippers to look beyond “paper rates” and analyze performance data that can reveal the true cost of choosing one carrier over another.
“The first carrier may have a terrific rate, but how often do they show up on time when you call them? Shippers that have better analytics have better insight into whether they’re getting the capacity at the right cost when they need it.”