Insiders would have scoffed at the idea a few months back, but it appears that RFID technology, only recently the hottest topic in the industry, has been temporarily eclipsed. Judging from the buzz at the Council of Supply Chain Management Professionals' annual conference in October, it's been supplanted by something decidedly less glamorous: trucks and trains.
The reason is simple: Shippers have grown increasingly worried about a shortage of freight capacity. The once plentiful supply of trucks has dried up, leaving them searching far and wide for carriers to haul their loads. Although they made it through the peak holiday shipping season relatively unscathed, that's done little to sooth their fears. They don't see the crunch easing anytime soon. In fact, they're worried that it will intensify.
Even if shippers are lucky enough to find trucks during peak shipping periods, their problems may not be over. They still have to figure out how to pay for the moves. Surging fuel costs this year, especially diesel prices, have driven up the cost of transportation. Hoping to pass those costs on to their customers, carriers are adding fuel surcharges to their bills. And they're apparently meeting with some success. Anecdotal evidence based on conversations at the meeting indicates that customers are paying the surcharges.
Truckers report that for a while at least, fuel came close to surpassing drivers as their highest cost, even though they're paying drivers more than in the past. Christopher Lofgren, president and chief executive officer of Schneider National, told one panel that once it hits $80 a barrel, fuel will replace labor as the industry's top cost. "Fuel is still our number two cost, but if you can't recover your fuel costs then you can't stay in business," Lofgren told a packed session.
If higher prices weren't enough, shippers face the added challenge of explaining the implications of skyrocketing fuel costs to their bosses. More than a few of the 3,200 executives who attended the CSCMP conference mentioned the difficulty of convincing senior management that their 2006 budgets would be taking a big hit. Though many expect diesel costs to drop, few expect a return to the rates of even a year ago. Even with refinery capacity coming back on line after this summer's hurricanes, much of the production is being devoted to gasoline, not diesel fuel. And with winter upon us, production of home heating oil is likely to take precedence.
And the problem isn't only fuel. During his session, Lofgren reported that the cost of operating and maintaining equipment, typically a trucker's third highest expense, was on the rise as well, a result of regulatory requirements.
Forget riding the rails
Shippers who figure that if they can't find a truck, they can always turn to rail, may be in for a surprise. Railroads can no longer pick up the slack.
"In the past, railroads could act as the shock absorber for the supply chain, but in today's world we can't do that any more," said Jack Koraleski, executive vice president of Union Pacific Railroad, who participated on the same panel as Lofgren. "We are in a unique and strange position from the transportation perspective."
In the last 25 months, Union Pacific has set new records for volume every month except for three. Those months were ones affected by natural disasters. "Right now we're in a position where customers want to move a heck of a lot more freight with us than we have capacity for," said Koraleski.
Koraleski wasn't alone in his assessment. Frederick Draper, vice president of business development for BNSF Railway, also worries about the capacity problem and its implications for the future. "The national rail network is under stress," Draper told another session. "We need to expand to handle today's volume, never mind volume that will triple by 2025."
But wait, there's more
The truck shortage, fuel costs and rail capacity problems aren't the only problems facing the industry, a panel of trucking company executives told the audience at another session. You can add the driver shortage, driver safety, security, and crumbling roads and bridges to the list.
At the session, Douglas Duncan, president and CEO of FedEx Freight, made particular note of the difficulty truckers have when it comes to finding experienced drivers. But he also admitted that truckers themselves bear part of the blame. The industry is not doing enough to attract good workers, he said.
Scott Arves agreed, noting that the biggest obstacles appeared to be lifestyle and economics. Truckers must compete with construction companies for the same pool of workers, observed Arves, who is Schneider National's president of transportation. Truckers find themselves at a distinct disadvantage in that competition. Construction jobs pay better in many parts of the country, and they don't require workers to be away from home overnight.
What also has truckers worried is the condition of the roads over which their vehicles travel. Though private industry can't do much to resolve highway congestion, the panelists agreed, that doesn't mean their hands are tied. What they can do is lobby for money to fund infrastructure improvements.