Deregulation naysayers were right about everything, except the most important thing
Opponents of deregulation correctly predicted the consolidation that has taken place in the freight transportation marketplace. But that's just part of the story.
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.
In six months, we will mark the 50th anniversary of the first National Master Freight Agreement, which brought 450,000 truck drivers into the national Teamster fold and is credited by some with lifting more workers into the middle class than any event in U.S. labor history.
Today, there are about 30,000 workers in the pact, most of them at one company: YRC Worldwide Inc. Archrival ABF Freight System Inc., once a party to the agreement, withdrew last year. In fact, ABF may no longer exist if YRC pursues a proposal to buy it out, further consolidating the less-than-truckload (LTL) market.
Today's topic isn't the travails of organized labor, however. It's something touched on in the last sentence of the previous paragraph: market consolidation in the post-deregulation era.
Deregulation opened up the marketplace to a broader range of services. It gave carriers the freedom to succeed—or fail—based on free-market principles. And the multiyear competitive battles that took place in the airline, railroad, and trucking industries in the decades following deregulation allowed users to get more while paying less.
Naysayers of deregulation warned we would be lulled into a false sense of security about our service options. The day would come, they told us, when we'd wake up to find the marketplace in the hands of a select few providers.
They were right. That day has arrived. Today, the United States has four major airlines, five major railroads, and two major parcel carriers. And if YRC, say, were to acquire ABF, there would be one fewer LTL carrier to choose from. The $50 billion-a-year truck brokerage market, as historically fragmented as they come, is facing a strong consolidation push from XPO Logistics, whose founder, Brad Jacobs, is a master at buying his way into economies of scale. The maritime industry, which thousands of U.S. businesses rely on, is so upside-down in its economics that many think carrier consolidation is the only way out.
All the things opponents of deregulation said would happen do indeed seem to be happening. But at the same time, the naysayers have consistently overlooked the most important aspect of deregulation: Free markets work better. Always have. Always will.
As we saw in the 1980s, the first decade of transportation deregulation, the market will sort itself out. Weaker players may fall by the wayside, but others will step in, innovate, and fill the void. Make no mistake, it's not an easy path. The cost of assets to enter the freight services market is high, and so too are the barriers to entry. It is not a market for the risk-averse. This is a market for the likes of Fred Smith, Don Schneider, J.B. Hunt, and perhaps, Brad Jacobs.
Whether you support or oppose deregulation, a case now before the Surface Transportation Board (STB) is worth watching. Groups representing shippers want the STB to require railroads to implement reciprocal switching practices for captive shippers. Proponents of the proposal maintain it would provide relief to businesses that don't have the option to use a second railroad to move their goods. Railroads argue that a move to mandatory switching would degrade service levels, add unnecessary costs, and be akin to reregulating a now-thriving industry.
Perhaps the most influential rail chieftain, Matt Rose of BNSF, frames the proposal as a property rights issue tantamount to, say, FedEx's being forced to relinquish parcels to UPS. The comparison is apt. Mandates to business are the province of the market, not the government.
A ruling favorable to shippers could ripple across the modes. But any action is still some time off. In the meantime, the landscape narrows, rates and fares rise, and service options change by the minute. Welcome to the present. And perhaps the future.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
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.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.