The transportation market growth will continue to outpace the economy at large. Where will that growth occur? What can we do about it?
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While doing some research on several of the larger carriers, I happened upon the careers/job openings sectors of their websites. Along with the pitch of “great job, benefits, great company” and so on was something new—signing bonuses—for truck drivers! Usually reserved for ‘higher-ups’—executives and very senior tech professionals—this demonstrated the situation we now find ourselves in: the driver shortage is no myth. According to the American Trucking Associations (ATA), we are facing a shortage of 239,000 drivers over the next few years. And with unemployment the lowest since the economic meltdown of 2007, the shortage might stay that way.1
So What’s Going on?
Logistics, like most sectors, will rise as the water level (the overall economy) rises, of course. But that does not tell the whole story. And, in fact, by looking just at GDP, we may miss important factors that we as supply chain people can see, factors that will ultimately have a positive impact on the economy over time. That change will mean new jobs for the US. And more jobs mean more consumer spending. There has been an extraordinary explosion of innovation across multiple industries, from clean tech, energy, and construction to changes in manufacturing strategies. Along with that, a generational shift is steadily moving forward. Lifestyle changes are occurring in how we shop, eat, and live in our homes. This shift in what we produce and how we consume is changing the logistics industry.
Increasing activity and the corresponding demand for more transportation services is also a result of the industry and lifestyle changes, and will be another important contributor to our growing economy. Quantitatively that will mean, according to the ATA, that transportation tonnage will increase 23.5 percent in the next ten years. Think about it—that is almost a quarter again increase in freight!
In addition, the services we want to outsource could be caught in the middle of this. Not only do they rely on a responsive trucking industry, but it turns out they have some talent shortages of their own. In a recent study2 published by Dr. Robert C. Lieb, Professor of Supply Chain Management at the D'Amore-McKim School of Business at Northeastern University, he stated that “finding and keeping talented managers ranks among the top three problems” faced by 3PLs worldwide. CEOs of these firms “identified a number of possible reasons,” Lieb goes on to state, “which can be clustered into several areas. First, large 3PLs find themselves competing for supply chain and logistics management talent with manufacturers, retailers, other 3PLs, consulting firms, and other service-sector organizations. It's a very competitive market and the talent pool, particularly at the entry level, is not sufficient to meet the industry's needs. There is much greater demand than supply, particularly in emerging markets.”
Competition for willing and talented employees at all levels continues to force pay upward, and it looks like the positive upward spiral has momentum.
Forces at Work
Increase in the housing market: The US recovery has been slow but steady. So today, with interest rates low and an improving job market, more consumers have been buying homes. The construction industry consumes over 5 percent of the trucking business, according the US government figures, with expected growth rates of 5 -7 percent forecasted from various sources.
Domestic energy: The NAFTA ecosystem has been on a self-sufficiency tear for several years. Fracking, drilling, oil sands extraction, and so on, have grown within the US. Not only this has increased transportation demand directly, but the oil and mining industries have been consuming more rails, forcing shippers to turn to trucking. This has created a job boom out west and in Canada where most of this activity occurs. The energy sector consumes 38 percent of trucking tonnage recently, according to the ATA and the OOIDA.3 This consumption is a recent surge upward, and will continue to grow, though only slowly. US domestic consumption is growing, so this means transportation from sources (mining, extracting) as well as outbound to retail consumption.
Insourcing: Yes, it is true. Manufacturers are thinking about, and are already somewhat coming home. Some interesting data from the US government indicated that manufacturing facilities increased. Manufacturing consumes most of the LTL4 trucking and almost half of all freight movement/tonnage in the U.S. Also, in a recent survey by Boston Consulting Group, their respondents indicated not only a slight increase in sourcing activities, but a marked increase in the reshoring plans.
A “survey of senior manufacturing executives at companies with sales of $1B or more found that the number of respondents who said that their companies are already bringing production back from China to the United States had risen 20 percent – from roughly 13 percent to 16 percent – in the past year. The number who said that they would consider returning production in the near future climbed 24 percent – from about 17 percent to 20 percent...These findings show that not only does interest in repatriating production to the U.S. and creating American jobs remain strong, but also that companies are acting on those intentions," said Harold L. Sirkin, a BCG senior partner and coauthor of the firm's series on the shifting economics of global manufacturing, which was launched in 2011.
“Another noteworthy finding this year: respondents indicated that the U.S. had surpassed Mexico as the most likely destination for new manufacturing capacity to serve the U.S. market. In addition, respondents predicted that the U.S. would account for an average of 47 percent of their total production in five years. The survey findings reinforce a previous BCG estimate that reshored production, along with rising exports, could create between 600,000 and 1 million direct manufacturing jobs by 2020.”5 Of course, the impact of these increases on transportation is more inbound and outbound activity.
Increasing the inventory base in the US: During the last few years, enterprises have been more ‘friendly to inventory build-ups.’ Slow steaming by the big ocean carriers and port delays in west coast inland ports cause a scramble when shipments finally arrive. Importers have responded to these delays by housing more inventories within the US. The result: more inland port warehouses. More transportation moves between ports, to warehouses, and on to consumption/retail.
Direct hiring in the Logistics industry continues: According to the Department of Labor, the US trucking industry has been adding thousands of new jobs each month.6 UPS, FedEx, Amazon and others, as we discussed in our last issue, are not just hiring seasonal workers, but expect the home-delivery market to catalyze a continued upward trend in hiring drivers and warehouse workers (and their managers).
Warehouses/inventory and regional distribution: In our last issue, we talked about retail and the changing dynamics of Omni-channel. This is also driving a rethinking of the logistics and service networks. More responsive warehouses which are being built closer to markets will not only infuse cash into local markets, but create sustaining jobs.
Frustration in execution leads to solutions. In the supporting cast, the technology market continues to thrive, providing optimization approaches for logistics processes. Equally important, universities are stepping up to the plate, finally recognizing that supply chains produce jobs—jobs with quality pay that seem to have survived the ups and downs of the economy.7
When I talked to Bob Lieb of Northeastern University recently, who has been doing 3PL and Supply Chain surveys as part of his pioneering Supply Chain and Logistics university department work for over a decade (probably over two decades), he told me that not only is supply chain a required course now for a management degree, but every graduate who attains a degree in supply chain is scooped up by companies upon graduating. More local colleges also have introduced and are growing their supply chain departments across the country.
And if young people are seeking international experience, supply chain is the place to get it. As enterprises continue to expand their global presence, keeping their supply chains effectively moving will require even more talent than we can produce today. Perhaps the companies offering signing bonuses to truck drivers are onto something. And moving logistics in the right direction. It may be that more traditional benefits, which are fitting for a respected employer/employee relationship, will drive up the number of applicants as well.8