In the latter half of 2016, major trucking companies have been cutting their fleets down to size, a consequence of volatility in shipping demand. The Wall Street Journal reported that Werner Enterprises, Covenant Transportation Group and Swift Transportation were among the leading shippers that took hundreds of trucks out of service. By bringing down the capacity of the supply chain, the companies are striving to drive up prices for their services.
The primary drivers of this situation appear to be slow growth in manufacturing and limited imports in the retail sector. While the holiday season will bring a boost from retailers adding to their stock, it remains to be seen what long term prospects are ahead for the freight industry. As the balance of supply and demand continues to shift, it's increasingly vital to maintain nimble, adaptable supply chain practices.
Reacting to Dipping Prices
The current uncertainty in the shipping industry stems from a number of factors in addition to the unstable level of demand. Trucks.com attributed the widespread impact to an ongoing driver shortage, increased regulation, surplus inventory and an excess of capacity. Bob Costello, chief economist for the American Trucking Association, noted that the economic indicators were unusually mixed over the past year, creating difficulty in making any definitive statement about current market trends.
"Volatility continues to reign," Costello said. "What is clear to me is that normal seasonal patterns are not holding in 2016."
The stagnating shipping rates and dropping prices have become a pressing issue for organizations relying upon shipping and logistics. One indication of this downward tendency comes from DAT Solutions, which tracks rates for industrial freight. According to the business intelligence provider, the rates for long-term contracts on shipments and spot-market freight hauls in September had fallen by 6.4 percent from the previous year.
In response to the sagging demand, leading truck companies have significantly reduced the number of trucks on the road, according to the Wall Street Journal. In the third quarter of 2016, Swift - the largest carrier in the U.S. - had 581 fewer trucks in its fleet than one year earlier, with plans for further cuts ahead. Within the same period, Werner dropped 240 trucks.
A course correction may be ahead, however. Research from IBISWorld projected resurgent profits for shipping in 2017, buoyed by greater demand for American-made goods. This report suggested that rebounding consumer spending will lead to a 2.4 percent boost in trucking sales.
Maximizing Efficiency Across the Supply Line
As the uncertain current state of the shipping industry demonstrates, it's more important than ever to maintain tight controls over inventory and logistics, with the agility to shift according to the market. Reduced fleets may bring balance for supply and demand, but changes will continue to affect how organizations transport and store inventory.
For instance, more retailers are saving on storage costs by ordering items as needed. This strategy means greater need for immediate transport and will have growing relevance for the shipping industry. Dealing with the complexities of order fulfillment with maximum efficiency requires accurate, up-to-the-minute information that can be easily shared with stakeholders throughout the enterprise.
By integrating an automated data collection solution into supply chain workflows, companies gain powerful insights into the fluid situation of inventory control and logistics. Especially in uncertain times, an organization needs a strong understanding of how every step along the way is operating and contributing to overall costs. By switching from paper-based strategies, companies prepare themselves to move proactively in meeting the needs of consumers and manage inventory more effectively.
The RFgen white paper "The Data Collection Software Buyer's Guide" lays out how electronic data capture transforms the operations of warehouses and transportation centers. With greater accuracy and productivity and reduced expenses for labor and storage, organizations are positioned to improve every aspect of their supply chain logistics management. Retailers can minimize overstocking, accurately plan ahead according to inventory levels and use voice picking to cut the time necessary for picking, packing and shipping items.
The cuts in trucking fleets could bring greater profitability to freight shipping and set up the industry for future growth. However, the situation demonstrates how necessary it is to update strategies across the supply chain to suit the current volatility of the marketplace and meet expectations of consumers.