Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
That may be a reasonable question for trucking executives to ponder as they start 2010. That is,
if they aren't too busy beating each other up over pricing to think through the consequences of
their actions.
As a grinding freight recession ended its third year, the rate environment for truckload and, in
particular, less-than-truckload (LTL) services, continued to weaken. Pricing trends in both
categories deteriorated considerably in the third quarter from the first half of 2009, according
to data culled from company reports and compiled by investment banker JPMorgan Chase. Even
railroad pricing on commodities for which the rails compete with truckload carriers has been
hurt by the weakness in truckload rates, according to the firm. Only ground and express parcel
services showed a sequential pricing improvement through the first three quarters of 2009,
according to the JPMorgan data.
Industry veterans have rarely seen anything like it. Michael Regan, CEO of TranzAct Technologies Inc., an Elmhurst, Ill.-based consultancy that over the years has negotiated and purchased billions of dollars of LTL capacity for shipper clients, says he's seen discounts of as much as 90 percent below retail, or tariff, rates.
The pain is being felt across the carrier spectrum. For example, two of the healthiest LTL
carriers, Old Dominion Freight Line Inc. and Con-way Inc., posted sub-par revenue and net income
results in the third quarter of 2009, with the top executives at both companies attributing their
respective performances to declines in tonnage and aggressive pricing competition.
"Overall, the business environment continues to present formidable challenges, characterized
by weak demand, excess capacity, and pricing pressure. We expect these conditions to persist in
the near term, diminishing the prospects for earnings growth," Con-way President and CEO Douglas
W. Stotlar said in a statement accompanying his company's results.
William D. Zollars, chairman and CEO of YRC Worldwide Inc., the nation's largest LTL carrier,
said he doesn't expect
a meaningful economic or freight rebound during the first half of 2010 and that rate weakness
will likely continue at least through that period. In an interview with TranzAct's Regan, Zollars
said YRC has been disciplined about pricing, noting it increasingly walks away from freight it
deems to be unprofitable.
"We don't want to be acting like our competitors who are 'fire-saleing' things for various
reasons," Zollars said in the interview.
Yet that didn't stop YRC from discounting its rates by as much as one-third through at least
the end of 2009. Jon A. Langenfeld, a transport analyst for Milwaukee-based Robert W. Baird & Co.
who reported the YRC move in a recent research note, said the action represents more "pricing
aggression" that will impede a meaningful recovery in prices and negatively impact LTL
profitability well into 2010.
Self-inflicted wounds
For carriers, the wounds have been largely self-inflicted. Beset by soft freight flows and
persistent overcapacity—the consensus among analysts is that there is 20 percent excess
capacity in the LTL sector—truckers have spent the better part of 2009 slashing rates to
win or keep business.
At the same time, carriers remained loath to remove capacity, keeping the supply-demand scale
firmly tilted in favor of shippers. Satish Jindel, head of SJ Consulting, a Pittsburgh-based
consultancy, says with the exception of YRC, no major LTL carrier took out capacity in more than
single-digit amounts last year. By contrast, YRC removed up to 30 percent of its capacity by
shuttering several regional operations and cutting 190 terminals from its YRC National unit during
the 2009 integration of Yellow Transportation and Roadway Express into the new entity.
Most of the predatory pricing was aimed at
taking share from YRC to drive the financially troubled carrier out of business and eliminate a
large source of supply. However, it appears those plans will have to be put on hold.
A November 2009 agreement under which
YRC's bondholders planned to exchange their debt for 1 billion newly issued equity shares—a
deal that will allow YRC to eliminate nearly $400 million in 2010 interest payments and give it
access to a revolving credit line of more than $100 million—is likely to keep the trucker
afloat at least through the end of 2010. This gives YRC critical breathing space to remain
competitive with a smaller, more efficient network that Zollars said "fits our business volumes
pretty well." At this writing, the swap had yet to be consummated.
Faced with the prospect of a surviving and perhaps recovering YRC, its rivals may take the
pedal off the pricing metal and look for different ways to remain competitive. "We think carriers,
once they realize YRC's financial situation isn't as precarious as it was, may step back and
create some stability in pricing," says Jindel.
That could actually be good news for shippers, who while being the beneficiaries of a
year-long rate gift that kept on giving, understand that in the long run, a carrier's inability
to earn an adequate return may deter it from making the investments needed to deliver a quality
product.
Regan of TranzAct believes shippers have picked most of the low-hanging rate fruit and should
not expect carriers to slash prices much further for fear of failing to cover even their variable
costs. "The bigger shippers have already grabbed the bulk of the savings that are there," he says.
Regan expects LTL rates to remain flat year over year, barring any unexpected developments.
Light at the tunnel's end?
There may be some light at the end of this very dark tunnel. Truckload rates, which normally lead
LTL pricing by many months, appear to have bottomed in late 2009 and are poised for an upward spike. If history is any guide, LTL rates should firm up sometime in 2010.
But these are not ordinary times. Unlike the LTL category, the truckload sector has already seen
a significant reduction in capacity during the recession. LTL overcapacity is likely to remain an
issue even after freight volumes recover.
Another and perhaps more profound trend is a shift in what Jindel called a shipper's "product
characteristics." Tonnage has traditionally been the bread and butter of LTL carriers. Yet the
goods being produced today are lighter and smaller than ever before, leading to painful declines
in tonnage tendered to the carriers.
Jindel says much of this lighter, smaller freight is being increasingly "converted" to
parcel services, a factor that may explain why parcel pricing
held up relatively well through most of 2009. The analyst says the shrinking in cargo size and
weight is a long-term trend, and LTL carriers must reposition their value propositions accordingly
or risk losing more business to parcel companies. "This is a more important long-term issue for LTL
than pricing," he says.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.