|A Matter of Necessity
Top reasons why companies embark on supply-chain risk-management initiatives.*
|Reduced commodity and material cost volatility|
|Reliability/continuity of supply|
|Overall supply-network cost|
|*Companies with annual revenues of at least $15 billion
Source: AMR Research
These days, just getting a load on the road is an accomplishment. A wave of mergers and acquisitions in the trucking industry — including YRC Worldwide’s $1.5 billion purchase of USF Corp. last year — has left customers with only a handful of national carriers to consider. “Over the past three years, demand has clearly outstripped supply,” notes Tim Coats, vice president, supply-chain logistics, strategy and grain, at General Mills. “Many companies have been caught short.”
Given the capacity constraints, trucking operators have become very choosy about the routes and customers they will service. Some operators have shut down marginally profitable routes or lines that no longer fit with their strategic goals. Last year, for example, YRC shuttered USF Dugan, a line it acquired when it purchased USF a few months earlier. USF had itself shut down Red Star, a Northeast-based carrier, following a union strike in 2004.
Most truck firms have also negotiated rate increases with customers. The rise in diesel-fuel prices has not slowed their momentum, either. Many have simply passed the costs on to customers in the form of fuel surcharges — a telling sign of the carriers’ newfound leverage. “The situation has completely shifted,” says Beth Enslow, supply-chain service director at the Aberdeen Group consultancy. “Manufacturers and distributors used to have the upper hand in setting prices.”
Now carriers have the advantage, a situation that is not likely to change anytime soon. The volume of domestic truck freight will likely top 15 million tons in about three years (a nearly 50 percent increase from 1998), says the Department of Transportation (DoT). If that happens, competition to secure cargo containers could become downright fierce, particularly during the peak holiday shipping season from August to October. “It’s definitely become a seller’s market,” says Tom Giovingo, executive vice president at third-party logistics provider Fidelitone.
To lock in cargo capacity, some businesses have started to strengthen their ties to national carriers. At General Mills, for example, the cereal maker’s management has identified the company’s busiest delivery routes (called lanes). On arteries where the volume is consistently high, the company attempts to negotiate dedicated service from cargo haulers. “We want trucks on those lanes available to General Mills 100 percent,” says Coats, who points to lanes between Cedar Rapids, Iowa, and Palmyra, Pennsylvania, and from Buffalo to Chattanooga as particularly crucial.