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The Boom and Bust Cycle in Transportation Costs

By Robert Snowdale, Founder and President, Distribution Solutions, Inc.

Flash back a year and half. Bill Zollars, Chairman, President and CEO of YRC Worldwide, the holding company of well known transportation brands such as Yellow Transportation, Roadway, New Penn, USF Holland, and others was saying, "..supply and demand work pretty well. We can charge more." Flash forward to today's environment and after having replaced the President of Yellow Transportation division for the third time in 15 months, Mike Smid, North American Transportation President and CEO of YRC, has given a directive to employees to retain market share at any cost.

Industry Consolidation
A spate of consolidation in the industry saw small parcel giant UPS gobble up Overnite Transportation, and small parcel competitor FedEx buy American Freightways first, and then Watkins Motor Lines next. There's a battle raging out there for market share, especially in the Less than Truckload (LTL) sector.

No Way Out for LTL's
The current economy, recession or not, relentless escalation of fuel costs, and declining availability of tonnage is putting the squeeze on all transportation service providers, but especially the LTL's. Full Truckload carriers can lay a driver off and park a tractor trailer unit when the going gets tough. Not so for the LTL's. An unrelenting infrastructure of brick and mortar to support the freight terminal networks required to move your 500 lb. shipment from Boston to Boise keeps them in the game through both boom and bust.

Bundled Pricing
Those LTL providers, the majority who don't happen to have a parent company that controls 65% or 35 % of the huge small parcel sector, have yet another competitive disadvantage. Bundled price offerings for LTL and small parcel services from UPS or FedEx worries their LTL competitors as much or more than the current economy…" So throw in your LTL and we'll give you that discount on second day air you always wanted." The rest of the pack has no answer for that play.

The Bottom Line
So what does all this mean to the average manufacturer or other company trying to compete? For those savvy enough to know the market well and how to play in it without getting hurt, it's an opportunity to significantly reduce related costs for competitive advantage. For the rest, the innocents, so to speak, this all adds up to increased transportation costs. As far back as June of 2007 Forbes Magazine stated, "the costs of logistics in the U.S. soared more than 15% last year, the largest rise in 30 years." As of this writing transportation and logistics related costs continue to soar.

Savvy or Innocent?
Sure, Yellow Transportation may currently not lose much market share from price competition when push comes to shove, but they and all their competitors will look to the innocents, those who don't know how to push and shove within the rules of the road, for the margins necessary to keep on truckin.

Which one are you, savvy or innocent?

Robert Snowdale is Founder and President of Distribution Solutions, Inc. of Plymouth, MA, a non-asset based logistics and transportation management consulting company helping manufacturers and other companies control freight costs and improve the logistics function. He can be reach at (508) 747-6200 x14, e-mail: rsnowdale@distributionsolution.com, web: www.distributionsolution.com

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