Some Shippers / Planners / Carriers Are Making Changes In Supply-Chain To Economize

Implications: New logistics, load planning and other supply-chain approaches are being taken to lower cost. Those doing it the same old way are being squeezed. As our colleague Mr. Schultz notes, freight has slowed and trucking company failures continue. Load makeup is changing and some are actively addressing it. Then there is all of the supply-chain safety and security issues on the table - and being green, too.

Analysis: There is considerable discussion (debate) in the manufacturer-shipper world about how to take more money out of the supply chain. There is also a trend away from the "Big Four and other 40,000-foot / we have the right process" folks to more down-to-earth logistics providers like FedEx Supply Chain Management, UPS Supply Chain Solutions, Caterpillar Logistics and Exel. The other interesting trend is actually toward those who not only have planning systems and warehousing, but also have assets (trucks / trailers) to move it for several reasons - like Ryder, Penske, Con-way, Schneider, JB Hunt, Greatwide, other Intermodal carriers, freight forwarders, etc.

Freight salespeople and load-planners with a real understanding of their customers can make money - while saving shippers, too. As load makeup changes, smart load-planners adapt by engaging shippers / receivers to maximize trailer space and weight capacity. We see this done constantly in weight-sensitive segments such as refrigerated, but can be done otherwise with schedule / route readjustments like being done in the auto industry. Asset-less providers are less able to effect such change.

It’s also not a surprise that when carriers change package-size cost criteria, as customers adapt to minimize cost. Some shipping less weight per package also recognize that there is savings to be had by being more flexible versus time-certain schedules. We do see real discounting anyway, which comes right off the bottom line. Another key issue is trust and relationships in all of this. When shippers find out from contemporaries that logistics-providers weren’t really looking out for them, they look around (and many are doing such).

Separately, I like the “cost-of-green” analogy from the standpoints of cleaner engines and the coming carbon-credit schemes. We all pretty much know about the added costs of cleaner engines, catalytic converters, maintenance etc. This is estimated to be at least a couple of percentage points cost against revenue. When we add in what offsetting carbon emissions will cost once mandated, plan for at least a thousand dollars per truck per year (120,000 miles per year divided by 6 miles per gallon = 20,000 gallons per year times 20 pounds CO2 per gallon diesel converted to tons = 200 Tons CO2 per year. At $5 per ton = $1,000 per year). These costs are also being looked at as a sales tool as an additional “green” surcharge to try to offer.

Also, I’d love to see a freight recovery. But the consumer is telling us they’ll eat at home, get by on less and cut other expenses (like gas). Those into basic food and consumables for daily life will always do OK in such an environment. A mid-2009 recovery sounds optimistic to me…