The New Normal Long-Term Changes in the Transportation Industry

Transcription

1 The New Normal Long-Term Changes in the Transportation Industry October, 2005 Indiana Logistics Summit

2 2004: the Perfect Storm Demand kick China Driver shortage Hours of Service Port/rail congestion Costs and prices way up 2005: the same, but slightly different Demand still growing, but slowing Costs still climbing, but passing it through in price is becoming more difficult Capacity and productivity continue to be elusive

3 When are things going to get back to Normal?

4 Get use to it because this is... The New Normal

5 The transportation industry has experienced three Normal periods Robber Barons Capacity Constrained High Rates High Profit Regulation Price Tied to Cost Excess Capacity Low Productivity Average Financial Returns Post- Deregulation Declining Prices Excess Capacity Increased Productivity Improved Service

6 Post Deregulation: price and service were whatever the shipper wanted Rates Trucking Rail Ocean Service SHIPPER

7 Truck and rail prices declined Real Change in Truckload and Rail Prices Truckload Rail Source: ACT Publications, Morgan Stanley

8 Ocean container rates declined Ocean Container Freight Rates % Asia/US Europe/US EB WB WB EB Inflation Adj. Change % -30% -45% -60% -18% -48% -17% -52% Source: Containerisation International

9 Truck productivity gains were key Truck Productivity Gains Trailer size: 40 ft. 53 ft. Truck engine and maintenance cycles lengthened Truck engine fuel efficiency increased Growth of nonunion carriers Improved technology and processes

10 Rail productivity gains were key Rail Productivity Gains Labor requirements declined Networks and track were rationalized following mergers Fuel efficiency increased Railcar max payload increased from 95 tons to 112 tons; many new and improved railcar types

11 But, the last 18 months mark the beginning of The New Normal Rates Trucking Rail Ocean Service

12 The New Normal characteristics Demand Longer Supply Chains Permanent Trade Imbalances are not short-term Increasing Prices Supply Increasing Costs Tight Capacity Productivity Improvements Unclear Supplier & sellers market, only productivity can change the game

13 Driver lifestyle is working against productivity Loads/Driver/Year Time at Home Productivity Impact Nights Home Per Month Dollars Per Mile $2.30 $2.10 $1.90 $1.70 $1.50 $1.30 Cost Impact of Time at Home $1.50 Base Nights Home Per Month Source: Schneider National, Inc. No relief near-term

14 90+% of miles are already billed and Tonmiles Per Year M's freight is not balanced Long Haul Truck Productivity Size & Weight Highway Speed Source: Schneider National, Inc. Deregulation Technology 1950: 73,000# Gross 40 Trailers 45 MPH Max 170 Hp Max 2-lane highways 2005: 80,000# Gross 53 Trailers 65MPH Max 500 Hp Max Interstates No relief near-term

15 By 2010, interstate traffic in major cities will exceed capacity

16 Productivity Outlook Inhibitors 315K GVW not likely Adding labor Slowing velocity Excess network is gone require major infrastructure investment Rail Mitigators Mobile worker Hybrid & fuel cell One person crews PTS, flow control Congestion pricing No relief near-term

17 Productivity Outlook Inhibitors Increasing imbalances Security Port labor Port trucking Rail connectivity Huge facility $$ Ocean Container Mitigators Terminal stacking Big ships Gate reservations Congestion pricing New ports Widen the Canal No relief near-term

18 West coast ports face significant capacity challenges MM TEU History Forecast 8% Growth 6% Growth West Coast Container Terminal Capacity 10 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

19 Conclusion Significant productivity gains are not evident near-term Inhibitors Fuel will stay high, mileage decline possible Labor tight and much more costly Equipment more costly, utilization hurt by congestion Infrastructure a longterm issue for all modes Mitigators Best opportunity is shipper behavioral change Info technology is the only other ray of hope

20 Dealing With It

21 Shippers and Carriers must take a fresh look at EVERYTHING Become the ideal shipper, or the ideal carrier Blend and integrate all possible networks and processes Take a total supply chain costs perspective and share benefits Seek out and embrace change

22 Dealing with it shipper responses Other Shipper Responses Collaborate with core carriers Work with more carriers Ship early spread the peak season Ship and receive all day Move to 24/7 facility operations Reconsider role of JIT Redesign networks Make facilities driver friendly Be flexible, and have contingency plans ready

23 Dealing with it carrier responses Carrier Responses Fire your inflexible customers Plan for key input shortages drivers, fuel, everything Automate and innovative Be open, honest and proactive Share benefits from change, like 24/7 facility operations Bring solutions, not just problems

24 Disconnects required trade-offs Collaboration vs. spread the freight Increase inventories vs. increase interest rates Emission reduction vs. fuel savings Driver quality of life vs. 24/7 ops. Driver productivity vs. equipment utilization Apply Fact-Based Analysis and Smart Tools

25 Conclusions The New Normal is not temporary It will continue until either: The next major recession Substantial infrastructure build out There will be winners and losers among shippers and carriers The winners will be those that best adapt to the change

26 Lee A. Clair Sr. Partner Norbridge, Inc. 570 Lake Cook Road #301 Deerfield, IL