More Recognition of Structural Change in Global Transportation
Supply Chain Matters continues to bring reader attention to the significant structural changes occurring in global transportation. Large numbers of manufacturers and service providers are revisiting global supply chain sourcing strategies and have placed a greater focus on transportation cost efficiencies and/or reliability. That is good news for bottom line budgets for manufacturers and retailers but rather troubling news for global carriers or global logistics services providers who have invested in expensive capacity and infrastructure.
We have called attention to this building evidence, the trend for continuing transportation rate increases on shippers to help shore-up provider balance sheets, and the stark realities that ocean container shipping lines continue to encounter.
If supply chain executives and their teams need even further evidence, we call attention to an opinion piece, A Simple Twist of Freight for UPS and FedEx, appearing in the Heard On The Street column of today’s Wall Street Journal. (paid subscription or free metered view) Keep in mind that this opinion column is written especially for the stock investor and equity trading community.
The column assesses how both FedEx and UPS have taken positive advantage from the past tends in global outsourcing, particularly the concentration of manufacturing in China and other Asia based locations. In mid-2008, their combined revenues were 63 percent higher than five years earlier. Both are benefitting from the current explosion in Internet and online commerce. However, the WSJ notes that the current five year revenue growth history for both firms has been just 11 percent, and the growth problem can no longer be attributed to global economic weakness. “Rather, the problem lies with more fundamental changes in how supply chains are getting set up.”
As we have been observing, the column goes on to call attention to supply chain teams increasing efforts for near shoring production to the U.S. and nearby countries, and acknowledges that the airfreight business is likely shifting into a lower trajectory. At the same time, shippers have come to expect that both global providers have insured reliable performance in multi-day delivery times, reliability that supply chain teams can trust. The column concludes with the opinion that both FedEx and UPS have a long haul ahead as they deal with these structural shifts, and the battle for market share in ground movements may heat up in the months to come.
The takeaway of this and other related commentaries remain the same. Procurement, supply chain and product management teams are to not at all assume business-as-usual in short and longer-term transportation strategy and contracting. Do your homework; stay informed of continuing industry shifts and implications. Select your transportation and logistics partners wisely, those that can fulfill both today’s and tomorrow’s business needs, FedEx, UPS and other reliable and well managed logistics players and ocean container lines will be around for a long time, but they need to deal with the ongoing structural changes occurring in transportation needs and the consequent impact on their existing and future business models, including misaligned capacity. Manufacturers and retailers are making positive strides in understanding shifts in global trends for both product demand and sourcing. The global transportation industry is now in the midst of internalizing these trends and their implications for future services.
We call reader attention to the latest WSJ column because it affirms that now, the global investor community has begun to observe and internalize these conditions.