1. Capacity will remain tight, and get tighter. Carrier after carrier spoke to replacing equipment, but not adding to capacity. The carriers reported that the current driver shortage is such that they were not going to buy tractors to sit empty on the lot. Finding drug free, CSA compliant, drivers without sleep apnea willing to drive fewer miles makes recruiting even tougher.
2. Margins are where margins will be. With carriers not adding capacity, and the pressure for trucks not at a critical (think 2006) level, margins are likely to remain in the 14% range for brokerage-based 3PLs. The challenge will be maintaining EBITDA at a lower gross margin starting point.
3. Technology and process improvement will be the key. The key to maintaining EBITDA at lower margins will come from technology and process improvements. While some industry experts argue that only the largest brokerage-based 3PLs will survive, I believe that technology providers will allow smaller companies to meet the challenge.
4. Shippers want brokers to act like trucks. Shippers repeatedly stated that they had brokerage-based 3PLs in their core mix. They stressed that they wanted brokers to act like trucking companies. The shippers said they did not want to hear excuses or problems. They wanted every load covered, safely and on-time. At least one large TIA member broker agrees crediting much of their success to covering every load, even at a loss. This member’s advice, do what you say you are going to do.
5. Everything that can move intermodal shall move intermodal. Shipper panels at both conferences stressed that they wanted everything that could move intermodal to move intermodal. It is imperative, if you are not already offering intermodal service that you do so. TIA offers an on-line Intermodal Course, we offer an in-depth session at the TIA Conference (April 9 – 12), and all of the railroads will be at the TIA conference.
6. Shippers adding inventory, slowing shipments. Dell Computer reported moving much of their business from airfreight to ship going from 58 hours to seven days to reduce transportation cost. Other shippers talked about taking miles out of their supply chains by adding small DC’s, adding inventory, and incenting customers to order more per shipment.
7. Trucking regulations are hurting productivity. Eric Starks, FTR Associates, spoke about the cost of current and pending FMCSA regulation of the trucking industry. Starks stated that the hours of service rules created a 3% drop in productivity. FTR estimates that without any operating improvements, the current spate of FMCSA regulations could require as many as 1.5 million more drivers just to do what we are currently doing.
8. Brokerage market continues to grow. Small and mid-sized shippers are increasing their outsourcing of their supply chain design, optimization, and operations to 3PLs. Shippers of all sizes recognize the benefits 3PLs bring to the market: investment in people, technology, knowledge, and purchasing economies.
9. There is no more mystery to pricing. Shippers and brokers at the meetings all talked about how pricing tools are being used to create more visibility in pricing. This visibility is leading to more collaboration in pricing.
10. The market will continue to change. Problems with capacity, government regulations, investment in technology and people, providing visibility to freight and performing like a trucking company, will all continue to stress the brokerage-based 3PL market.
Remember, these are opinions of one source that attended several transportation conferences and is in the business to support brokers.
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