In 2016, TWO broad-based themes will dominate the transportation and logistics landscape: uncertainty, and tension.
Heading into 2016, unexpectedly soft freight numbers have created economic uncertainty. Is another recession on the horizon, or is the recent economic slowdown a temporary blip? Given the economic uncertainty, expect shippers and carriers to play it safe.
What does “safe” look like? Expect carriers to add little, if any, capacity as they maintain a sharp focus on financial yields for customers and look to shed freight that has an unfavorable operating ratio. Less-than-truckload carriers will continue to push for dimensional- and density-based pricing, which (according to the carriers) more accurately reflects the cost of space being utilized on their trailers.
For shippers, look for your chief financial officer or chief operating officer to have a sharper focus on balancing supply chain/freight issues versus managing inventory levels. These executives will want to keep inventory levels as low as possible while demanding a reduction in freight and supply chain costs. Overall, this could result in even softer freight numbers — especially in the first quarter of 2016 — and put more pressure on carriers.
With everyone playing it safe, the pricing tension between shippers and carriers is magnified. While the price of fuel is down, carriers are looking at
increased costs everywhere else (equipment, driver compensation, insurance, etc.), and let’s not forget about the financial impact of additional Federal Motor Carrier Safety Administration regulations. Consequently, carriers will be looking for higher rates and assessorial charges to cover increased costs.
With senior-level executives continuing to demand reduced costs and better bottom-line results, shippers have two choices: Get lower rates,
or implement more efficient supply chain processes that drive out costs. Overall, pricing pressure/tension will be more acute than normal in 2016 between carriers (who will demand higher rates) and shippers (who will be seeking lower rates).
Read more of the Journal of Commerce 2016 Annual Review and Outlook magazine here. Note: subscription required.