C. F. Lynch & Associates
HOMEABOUTCLIENT SERVICESEXPERT ADVICECONTACT
   
 

The Weakest Link

By Clifford F. Lynch

DC Velocity, August, 2005

 

As the summer draws on, it’s become clear that one of the weakest links in the supply chain continues to be transportation – or to be precise, a shortage of transportation capacity. This isn’t the first time shippers have had trouble finding trucks to haul their freight, or course, but these days, they seem to have fewer options to fall back on. In the past, shippers whose freight was turned down by one carrier could simply go out and find a more accommodating hauler – or even shift their business to another mode. But in 2004, that didn’t always work. In the end, many have been forced to make wholesale adjustments to their operations.

To find out more about how shippers and receivers are modifying their operations, this magazine and the Warehousing Education and Research Council (WERC) conducted an online survey earlier this year. Though the complete results have yet to be published (look for more on the survey in DC Velocity’s October issue), several things have become clear from the preliminary results. For example, it’s evident that shippers are not taking the situation lying down. Almost half of those surveyed have ended up revising their warehouse operating procedures and shipping schedules. Some have extended their shipping and receiving hours. Some have made expensive physical improvements, adding staging areas, trailer drop areas or dock doors. And some have hired more people to load and unload trucks.

A few are doing more than just adjusting their shipping receiving operations, however. Ten percent of the respondents said they were considering starting up their own private fleets. It’s important to point out here that while this may give them more control over their destiny, they’ll still face all the same issues plaguing for-hire carriers. And those issues – the driver shortage and rising fuel costs, in particular – present a formidable challenge. The American Trucking Association projects a shortage of 111,000 drivers by 2014, and we’ve already seen the price of oil approach $60 per barrel.

Aside from the physical changes, several survey respondents also indicated that their companies had undergone a kind of attitude adjustment as a result of the capacity crunch. One company noted that in an effort to build better relationships with carriers, it had adopted a policy of paying detention charges.

Previously, it had simply ignored them! Although only a relatively small percentage (14 percent) said they had attempted to ease the problem by collaborating more closely with their carriers, those who had tried that route were generally pleased with the outcome. Several companies reported that they had achieved excellent results by setting up regular meetings with carriers to discuss forecasts and hash out problems.

What’s also clear is that even as they adjust their operations, the survey respondents have been hedging their bets. Almost 30 percent of the respondents said they had increased their stocks. That may not be a majority, but that number is nonetheless significant. For years, U.S. businesses have obsessively pursued the holy grail of inventory reduction, embracing programs like Quick Replenishment and Efficient Consumer Response in their never-ending quest to trim stocks. But now these same companies have been forced to abandon those programs and begin stockpiling both materials and merchandise to offset declines in transportation service. In fact, the Council of Supply Chain Management Professionals’ 2004 State of Logistics Report showed inventory carrying costs at their highest levels since 2000.

As for the future, more than half of the respondents (53 percent) said they didn’t expect to see much improvement in 2005. If they’re correct, shippers will be forced to continue looking for ways to cope. But even if those projections turn out to be unduly pessimistic, shippers should be forewarned: It will be some time (if ever) before things get back to normal.

 

 

List all publications

Return to Logistics Advice