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What’s on the horizon? By David Bennett Vice President, Global Logistics Sales, Schneider Logistics International Last month I wrote about the use of the word “sustainability” and the impact of overusing this term to describe market conditions. In recent weeks, I have spoken with many of the stakeholders in the industry, especially the shippers who complain loudly about increases that were implemented by the carriers in September, followed by another potential increase in the form of a peak season surcharge. Another word popped into my head that describes the impact of not being able to sustain these rate levels: outrage. Defined as “anger or resentment,” per Webster’s New American Dictionary, it clearly describes how shippers are feeling. These recent conversations and market developments spurred another thought: “What’s on the horizon?” In October of 2008, we experienced one of the sharpest drops in demand that our industry has ever encountered. The rapid decline in global economic conditions created chaos for every stakeholder. After returning from China in October of 2008 I wrote a column entitled “Field of Dreams.” I commented that terminal operators in South China had created massive facilities in a region designed to provide relief from the congestion being felt in Yantian. “Build it and they will come,” was the mentality. It was that same mentality ocean carriers had when it came to adding excessive capacity to the markets. Demand dropped overnight and we all know what happened next; rates dropped to record lows and key stakeholders are losing millions each month. Chaos is dangerous if you do not have a contingency plan in place that prepares you for unforeseen downturns. Market conditions are gradually improving, but the lack of proper contingency planning has caused radical changes in our industry that are going to be felt throughout the supply chain for many months. What is the next “jolt” that’s going to be felt in terms of management of the supply chain? Unfortunately, I am going to make some predictions that may create additional outrage due to the fact that rate levels in the drayage community, as well as the domestic trucking industry, cannot be sustained as demand returns to normal levels. Before this decline in global economic conditions, many of us in the industry were concerned about lack of capacity in the port drayage community. Several trade publications reported that the lack of drivers available on the domestic trucking side of the business would result in constant rate increases for this critical aspect of the supply chain. We cannot forget that before the drop in demand, we had severe capacity concerns. Port commissioners felt the market strength was so good that an environmental plan was created, essentially designed to drive capacity out of the market and drive rate levels up. Everyone in the industry was concerned that driver wages were too low before this downturn, but suddenly drayage rates dropped by 20 - 25 percent when demand dropped. The same situation that took place on the ocean carrier side of the business has taken place on the dray side; lack of demand and excess capacity have driven rates lower, while costs continue to rise. The net result is obvious. These rates cannot be sustained without consequences. On the domestic side, it is exactly the same. The only difference is that in some cases, the capacity not being utilized was sold and exported out of the country to regions such as Vietnam, where there seems to be hunger for trucks due to a lack of capacity and a tremendous increase in demand. So what will happen when the domestic demand returns to normal levels and rates increase because demand will again exceed capacity? See where we’re heading? Once volumes return to normal levels, as they will in the coming months, we will see that current rates for drayage services, domestic over-the-road and intermodal services cannot be sustained. People will become outraged because of the savings achieved when rates were so low. As I mentioned last month as we addressed “sustainability,” conflict creates opportunities for more efficient planning. I believe some refer to this as “conflict resolution.” We need to learn from the lessons of this most recent downturn as we enter into the recovery cycle. Maybe we should be more conservative in our “Field of Dreams” planning and remember that history has this incredible way of repeating itself.	In This Issue Up Front News, Trends & Analysis New Items The risks of delayed action Supply Chain Is your service provider compliant? Does that belong in my port? Features Grading the carriers: How are your service providers doing? Gateway at a glance: China Ports & infrastructure Port Productivity Tools: Six success stories U.S. ports downsize staffs in new economy Port Products RTGs and reach stackers Commentary What’s on the horizon? On the Horizon Fleets of the future: The Chameleon Casualties
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What’s on the horizon?