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.
Two years ago today, attendees at SMC3's annual winter meeting gathered around a big-screen TV in an Atlanta hotel to watch the swearing in of Barack Obama. They then proceeded home to resume the struggle to survive the worst downturn most had ever seen.
Last year at this time, the same group came together again, battle-scarred but hopeful about what lay ahead.
This week, the group of shippers, carriers, 3PLs, and assorted vendors brought a far different attitude to the event. For the first time since the financial crisis unfolded in the fall of 2008—and for many, the first time since a miserable freight recession took hold in 2006—optimism was clearly evident and for the most part, untempered.
When asked at a general session how many expected at least 10-percent revenue growth in their businesses in 2011, an overwhelming majority of audience members raised their hands. One notable exception was Chris Lofgren, president and CEO of truckload and logistics giant Schneider National Inc. Lofgren forecast 5 percent revenue growth for his company and voiced concerns that a slew of new government regulations—Lofgren listed 16 of them in a presentation he gave at the conference—would have a dampening effect on Schneider's growth outlook.
"There are more regulatory changes now than we've ever faced before," Lofgren told the audience. "Until we see the outcome of this, we are not going to add a single truck."
But Lofgren was in the minority this week. Thom Albrecht, transport analyst for BB&T Capital Markets, said in a Jan. 19 presentation that 2011 "could be a great year for freight" as companies aggressively ramp up their capital spending programs, and industrial production—which Albrecht said "creates freight"—grows at two to three times the rate of U.S. gross domestic product. Albrecht said he sees the current upcycle lasting until 2014.
Even the renowned economist Donald Ratajczak, whose voluble presentation style belies a cautious, prove-it-to-me attitude toward economic cycles, waxed bullish. Ratajczak was particularly optimistic about the second half of 2011, especially as states currently struggling with budget deficits get their fiscal houses in order and the economic drag resulting from the belt-tightening is offset by a 2 percentage point reduction in the employee-paid portion of the social security tax. Ratajczak said the reduction should add $250 billion in economic stimulus during 2011, the lone year the cut is to be in effect.
Ratajczak said the recovery could be derailed by a continuation of "bad policy" coming out of Washington. He added, though, that most of the policy directives that sowed so much uncertainty among the business community have already taken place and that future moves, if any, will be more benign to business.
Ratajczak also cautioned that China's potential inability to control inflation could lead to a dramatic and damaging upward spiral in prices. "But I see that as a 2013 problem," he added.
The fly in the transport ointment appears to be the prospect of rapidly escalating carrier costs and rising freight rates for shippers as carriers look to recoup lost ground from the freight recession of the past four years, seek to recover the expense of current and future investments, and brace for the impact of various regulatory actions on their driver pool and truck fleets.
G. Tommy Hodges, a trucker for 45 years and now president of Goggin Warehousing LLC, a 3PL based in Shelbyville, Tenn., said various environmental directives over the past eight years—including diesel engine retrofitting directives in 2007 and 2010 to comply with Environmental Protection Agency requirements—have added $35,000 to the cost of the average truck during that span. The costs of these unfunded mandates have yet to be recouped, so they will be passed on to shippers in the form of higher prices, Hodges told the gathering.
"That's a bubble on the horizon that's getting ready to pop. You better get ready for it," he warned.
The cost of replacing aging truck equipment is another concern. Albrecht said in his presentation that the average heavy-duty tractor and dry van trailer is older today than at any time in the past 10 years. What's more, new tractors cost $34,000 more today than in 2001, and maintenance costs—driven by increases in materials inflation—continue to climb, he said.
Compounding the dilemma is the imminent shortage of drivers as the federal government's new driver safety measurement program—CSA 2010—forces carriers to purge their fleets of drivers who are considered unsuitable risks under the CSA guidelines.
Albrecht said the trucking industry has exhausted the option of mining available labor from such depressed industries as construction. "If people haven't decided to be truck drivers by now, you're not going to pull them out of the unemployment lines," Albrecht said. He deemed the driver shortage an "incredible nightmare."
The result of all this is that dry van rates per loaded mile—an important pricing indicator—have begun to climb. After troughing in 2009, rates rose modestly in 2010 and are expected to spike in 2011, Albrecht said. He compared the current situation to 2002, when shippers lost their leverage over dry van rates and prices began a steep upward climb that continued for the next four years.
So far, the trucking industry is getting by with general rate increases in the 5.9 percent neighborhood for 2011. For their part, several carrier executives believe continued technological innovations and productivity improvements will offset the need for annual rate increases beyond the mid single-digit range. "There's a lot of opportunity to reduce expenses across the supply chain," said Jack Holmes, president of UPS Freight, the less-than-truckload unit of UPS Inc.
Lofgren of Schneider framed the future as one driven not by cost increases but by the continued tug-of-war between loads and capacity. "There are certainly cost increases coming, and you have to factor that in, but it's really a supply-demand issue. In the end, it's about productivity," he said.
For all the talk about what 2011 holds for shippers, carriers, and 3PLs, however, there is at least one inescapable fact of life: Rates have been down so long that, with the economy improving and costs rising, there is only one direction for prices to head.
"We are telling our customers that the general trend is up," said John Wiehoff, chairman and CEO of C.H. Robinson Worldwide Inc., the nation's largest freight broker.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."