We’ve all heard the saying, “Those who cannot remember the past are condemned to repeat it.” It’s one to take to heart looking back at 2015, described as a “pretty eventful year” by Larry Gross, senior consultant with the freight forecasting firm FTR in a webinar last month.
Lesson 1: Keep an eye on Washington
“Washington is playing an ever-increasing role in our transportation world,” Gross said. The new five-year surface transportation funding bill, the FAST Act, is a prime example.
Rather than looking at what’s in it (“a lot of accounting gimmicks and different sorts of magical items” to fund the bill, he said), let’s look at what didn’t make it into the law. Increased fuel taxes, bigger trucks, increased Interstate tolling, a broader pilot program allowing those under 21 to drive interstate are just some of the big items lobbyists tried to get Congress to put into the bill, but failed.
This doesn’t mean these ideas are gone forever. You can bet there will be future attempts to get such measures passed, all of which could affect your bottom line.
Lesson 2: Things can turn on a dime
“In 2015 the transportation world has again demonstrated it’s a very, very volatile place,” Gross said.
Truck capacity, for instance, was extremely tight in early 2014. By the end of 2015 it had loosened to numbers closer to historical averages. But don’t expect that to last – and this is where lesson number 1 comes in, thanks to expected new regulations.
“As these regulations…start to come into play, that utilization rate is going to start marching relentlessly northward again and start to get again into the extremely tight levels that we saw back in the winter of 2014 … as we get toward the latter part of next year.”
Add to this the big decline in the spot truckload freight market that happened in 2015 compared to the previous year – as Gross said, “a very good way of seeing the volatility of the sort of real time truck demand and supply equation” – and it’s easy to see how business conditions can change rapidly.
Lesson 3: The system is fragile
When you’re operating at high capacity levels, any glitches in the system can have farflung consequences.
The nation’s ports continue to be plagued by problems. Ocean shipping companies are dealing with what Gross called “chaos,” resulting from overcapacity, slow transit times, cancelled sailings and a major consolidation. Bigger ships on the East Coast will result in longer gate times.
If a fleet is operating at a level of utilization in the extreme high 90% area, “you have absolutely no ability to compensate for the unexpected…for any kind of disruption, and it’s going to to immediately and substantially affect pricing, rates and availability.”
Lesson 4: The only constant is change
One barometer the industry has traditionally used for future activity is the business inventory to sales ratio. Lower was better. But in recent years it has leveled out and now is rising. In the past, that was considered a sign that sales are slowing and the economy was weakening. That’s not the case this time around, with Gross noting the economy is growing, albeit at a “tepid 2%.”
So why are inventories growing? Distrust. A distrust “supply chain managers have with regard to the reliability of the network that they are using to bring their product in,” he said.
This distrust is probably the effect of West Coast port congestion that happened a year ago due to labor difficulties, which resulted in cargo containers stacking up at ports. Also, “shippers are starting to react to the fragility of the transportation network and the increased chances of disruption,” Gross said.
The takeaway from these four lessons? It’s important for businesses to maintain their agility and watchfulness. Remember things can and do change quickly. But possibly even more important was the final point he made. “Even our long-standing bedrock assumptions are potentially at risk.”