IT'S A QUESTION OF BALANCE _ AND PROFITABILITY

IT'S A QUESTION OF BALANCE _ AND PROFITABILITY

Several recent industry developments serve to remind us that the transportation industry is more famous than many for experiencing peaks and valleys of volume.

To deter customers from using their trailers as warehouses for holiday season inventory peaks - which are expected to be exacerbated by Year 2000 buying - motor carriers plandetention charges that could range from $150 to $300 a day. This is no surprise. Motor carriers have always understood the correlation between profitability and asset productivity and velocity.Trailers must be balanced and loaded frequently for the motor carrier to be profitable. Advanced truckload carriers understood this early and developed corporate designs where operations, sales and marketing efforts were both carefully coordinated and closely intertwined.

Although sophisticated computer models for asset maximization have been developed, they boil down to common sense. Round-trip loads are the best. If round trips are not available, rates must be maneuvered to maximize profitability. This may mean raising the headhaul rates or decreasing the backhaul rates. And backhauls must be limited for equipment to reach the next headhaul load.

Steamship lines have been doing a delicate balancing act for years. Some lines do this with sophisticated systems; some simply rage about the problem.

According to a new study by Drewry Shipping Consultants, fully one-fifth of all containers moving are empty. Leading the pack was the trans-Pacific trade, where the number of empties doubled from 1997 to 1998. Lines have responded to this imbalance by creating equipment-imbalance surcharges.

It would be easy to attribute the imbalance problem to the U.S. trade deficit. Imports are up due to a strong dollar and a robust U.S. economy. Exports have declined due to Asian flu and the strong U.S. dollar.

We have, after all, witnessed this phenomenon before. Prior to the 1985 Plaza Accord on currency rates, a similar situation existed. But rates were much higher and lines could afford a load-empty round trip.

Today, the introduction of new capacity has allowed headhaul traffic volume to grow. At the same time, export business has declined.

Some believe that much of this slowdown is permanent. Raw materials that were once exported from the United States are now produced overseas. Imports now outnumber exports by 2-1, according to a recent study by PIERS (The Journal of Commerce's Port Import/Export Reporting Service).

What can steamship lines do? Step One may be to hire truckers to help them manage equipment.

Equipment control has never been the strong suit of many lines. Part of the reason is the unique nature of North America, whose size and breadth call for a unique brand of intermodal operation.

Many lines attempt to apply a port-to-port business model - a standard in other markets - to the U.S. market. This does not work. Aggregate equipment counts cannot effectively control a fleet that is increasingly specialized and may be located at hundreds of different locations.

Some lines discovered ''matchback,'' or other overly simplified methods of moving exports back to the Far East. This system represented progress, but it wasn't enough.

The most notable unsolved problem was that steamship lines could not calculate costs on an individual activity basis. Traditionally, voyage accounting is accomplished by adding up expenses and revenues for a given vessel voyage. This process takes months and frequently disregards at least some prior and subsequent activity. As a result, decisions are made on average, not specific, costs.

The voyage accounting methodology sometimes forces unwise business decisions. For example, a steamship line may overlook a domestic move from the Midwest to the West Coast, and its implied empty move to Hong Kong, in favor of an intermodal waste paper export to Korea - which still requires an empty move to Hong Kong.

The domestic move has a lower net cost and the box is available for reloading weeks (sometimes months) faster. This poor decision to load waste paper may be the result of arbitrarily established export target volumes rather than a sound, profit-maximizing mindset.

And how do steamship lines manage their global services? Europe has the same imbalance problem with Asia as does North America, but Europe has the option of taking price action to induce containers into the trans-Atlantic.

Although the European office looks clever, the wasted move (not truly profitable on its own merits) only exacerbates North American imbalance and further erodes steamship line profitability.

This problem is even more delicate because it strikes at the cultural and managerial roots of a company. In other words, both the European and American offices seek to enhance their image with Asian headquarters by soliciting outbound business regardless of profitability.

Traffic imbalances and seasonal peaks present ongoing challenges to transportation carriers. Successful companies surmount the problems - or at least minimize their impact - to achieve profitability.

Steamship lines must abandon the ''not invented here'' mindset and start using best practices adopted elsewhere. Their profitability hangs in the balance.