December 8, 2014

COMMENTARY: Dealing with the "3 D's" of transportation

Shippers and carriers face an exceptionally challenging time in a trucking market that is being shaped by three significant forces: a rise in demand, a shortage of drivers, and increasing decrees from government.

By Karl B. Manrodt and Christopher Boone

Let's face it. There's been a lot of discussion about the future of transportation. Carriers are in the midst of the long-predicted driver shortage, and capacity is increasingly constrained. Shippers are pressing for lower rates while experiencing higher turndown ratios, higher costs, and reduced services. It's a potentially dismal state of affairs. One that is often difficult to explain to your colleagues in procurement or to senior management.

Results of the "23rd Annual Study on Logistics and Transportation" that we conduct each year for Logistics Management magazine suggest shippers can point to three D's when discussing the forces impacting transportation: demand, drivers, and decrees from the government.

Demand.The demand for transportation has been increasing. At the "State of the Union-Transportation Industry Executive Panel" discussion held at the Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference, carriers expressed cautious optimism that demand for transportation services will continue to grow, pointing to the U.S. Bureau of Economic Analysis' estimate of 4.6 percent growth in gross domestic product (GDP) in the second quarter of the year. While more conservative estimates suggest only 2-percent to 3-percent growth in GDP, it is seems reasonable to conclude the demand for transportation will continue to rise.

Drivers.How long have we been talking about the driver shortage? (Here is a hint, it was before iTunes, gas cost $1.30 a gallon, and phones were getting smaller—not bigger.) It turns out, experts were not "crying wolf." The shortage is here, and it is here to stay. The forces driving the driver shortage are a near "perfect storm." The pool of available drivers is shrinking rapidly, while demand for their services is increasing. According to a recent American Trucking Associations (ATA) study, 37 percent of carriers point to pending retirements as the biggest reason for the shortage, followed closely by industry growth (36 percent).

What will it take to fix the shortage? Obviously, the answer is complex. However, Craig Harper from JB Hunt, speaking at the CSCMP Annual Conference, provided an especially insightful response: "What would it take to get your child or nephew to become a driver?"

Decrees from the government. Strong headwinds. Is that a polite enough way to describe the current legislative climate in Washington and its impact on the transportation industry? It has been generations since we have experienced such an intense regulatory environment. Hours of service rules are in flux. CSA is rolling out. All trucks were originally mandated to have electronic on-board recorders by 2016; now it's been moved to 2017.

As daunting as these current regulations are, the more concerning fact may be the federal government's predilection for more regulation. This is in sharp contrast to the late 1970s and early 1980s, when the shift was toward deregulation of the industry. In fact, some have suggested the transportation industry is in the midst of a new era of re-regulation.

A DIFFERENT APPROACH
Add up the 3 D's, and shippers get higher costs! The cumulative effect of increases in demand, reduction in driver availability, and regulatory changes resulting in productivity losses (such as from hours of service regulations) and increased equipment costs (such as from converting to electronic on-board recorders) is estimated to be a 17-percent increase in transportation costs.

This is certainly a daunting challenge given today's increasingly demanding and cost-sensitive market. However, with great challenge comes great opportunity. In fact, the incentives for carriers and shippers to work together have rarely been greater. Shippers who embrace collaboration and seek strategic long-term relationships with carriers (rather than a one-year contract) will be rewarded with improved service and availability. As shipper scorecards become as common as carrier scorecards, shippers who treat a carrier's drivers (and administrative staff) professionally can expect to be given higher priority for available capacity while those that don't may find themselves searching for another carrier.

By working together, shippers and carriers can face the 3 D's together and change the industry for the better.

Editor's Note: Karl Manrodt is a professor in the Department of Marketing and Logistics at Georgia Southern University, located in Statesboro, Ga. He is also the Director of the Southern Center for Logistics and Intermodal Transportation. Christopher Boone is an assistant professor of logistics in the Department of Marketing and Logistics at Georgia Southern University.

About the Authors

Karl B. Manrodt
Karl Manrodt is a professor of logistics and supply chain management at Georgia College.

More articles by Karl B. Manrodt
Christopher Boone
Christopher Boone, Ph.D. is Assistant Professor of Logistics at Georgia Southern University.

More articles by Christopher Boone

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