Five Factors Affecting the Future of Freight Movement

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Highway congestion, the driver shortage and supply chain optimization are all causing shippers and carriers to examine the way they move freight. The top 10 percent of all trade corridors move 79 percent of all goods, according to a report by the Brookings Institute, but the amount of traffic on those corridors could shift due to these five factors.

Changes in Distribution Centers
The need to get items to consumers quickly coupled with concerns over aging infrastructure and supply chain disruptions is driving a growing number of retailers and shippers to position product regionally throughout the country. They are also turning to a variety of fulfillment methods, ensuring they have adequate supplies of just-in-time along with just-in-case inventory available when it is needed.

Tom Jensen, a transportation policy expert for UPS, said the shipping company is seeing more retailers leverage their stores as mini-distribution centers in an effort to optimize their supply chain, which moves inventory closer to consumers and allows retailers to minimize markdowns by shipping an item to an online buyer instead of offering it on sale.

Macy’s is among retailers that are now fulfilling orders from the store, giving them, in effect, mini distribution centers throughout the country. The retailer has rolled out fulfillment capability at 500 Macy’s stores nationwide. “The rapid growth of Macy’s direct-to-customer shipments, rooted in our omni-channel approach to business, requires us to continue to strategically add fulfillment capacity so our customers can receive their orders quickly and efficiently,” said Terry Lundgren, chairman, president and chief executive officer of Macy’s Inc.

Richard Thompson, managing director of supply chain and logistics solutions at the real estate firm Jones Lange LaSalle, said he has seen an increase in the number of traditional retailers moving into dedicated fulfillment facilities so they can ship to the consumer directly instead of fulfilling retail stores.

Over the past few years Thompson has also seen a broadening of demand for warehouse space in smaller markets. “You’re seeing increased demand in regional requirements and an uptick in more secondary markets,” he said.

However, some companies are moving out of rural locations, where land has traditionally been less expensive, to more urban areas in order to position product closer to consumers and reliable transportation networks. For example, Amazon closed its one-million square foot distribution center in Coffeyville, Kansas in February to relocate closer to a larger city.

“They’re closing it essentially because it is inconvenient from a freight cost standpoint. If you look at a map and see Coffeyville, Kansas, it is in the middle of nowhere,” Thompson said.

Congestion
Congestion on the nation’s highways will cost Americans $276 billion annually by 2020, according to a report from the BlueGreen Alliance, a coalition of labor and environmental groups. The Alliance cited the American Society of Civil Engineers 2013 report card that said 42 percent of American’s major urban highways are congested. U.S. infrastructure received a D+ grade in the most recent report card from the American Society of Civil Engineers.

Carriers and shippers may begin to shift away from the most congested areas in order to keep freight moving. AIT Worldwide Logistics, Itasca, Illinois, works with its customers to try and alleviate bottlenecks throughout the supply chain, starting with the point of origin. The company sets up virtual warehouses for customers within its own facilities—it has 38 of them throughout the U.S.—and stocks high velocity items to get them closer to the customer.

“One of our clients did a lot of business through one point. The following year we moved it to five points. It allowed us to allow the seller to change their cutoff date for delivery by Christmas. By us moving product, they could change that cut off by six days, giving them six more selling days,” said John Hagi, AIT’s director of home delivery and special services.

AIT Worldwide Logistics has turned to technology to try to streamline its shipping. “We created a technology platform we call the capacity management tool that allows us to spread that volume out throughout the supply chain. Even at the beginning, it allows us to move product effectively so that we have a funnel that is as wide at the bottom as it is at the top,” Hagi said.

Congestion at ports can shift freight as well. Recently, congestion at Pacific Coast ports led to an increase in freight volume at ports in Savannah, North Charleston, Wilmington and Norfolk. Several Atlantic ports are improving their infrastructure in advance of the widening of the Panama Canal.

The Shift in Energy Production
The increase in oil and natural gas production in the U.S. led to a spike in the number of trucks on the road in certain areas, but that may wane as the price of oil drops and U.S. production declines. Several major oil companies have announced plans to cease drilling. Not only will that affect the amount of petroleum products being moved, it will also cause a decrease in the movement of drilling equipment and supplies.

Driver Demands
The driver shortage is continuing to increase, and carriers are doing everything they can to attract and retain drivers. For many carriers, that has meant creating more regional routes and shortening the length of haul so drivers are home more often.

This reduction in average length of haul has been an ongoing trend and it now averages around 500 miles. However, Bob Costello, chief economist with American Trucking Associations, told Stop Watch some carriers have said they are trying to boost their average length of haul. “After years and years of bringing it down to try and get drivers home more often and because a lot of large retailers have opened distribution centers across the country, we’ve had a few members try to tell us they’re working to boost their average length of haul because they have a group of drivers complaining about not being able to earn as good of a living,” Costello said.

Changes in Demographics
Shifts in the population and housing needs could change freight demands. According to the most recent census, Texas gained more people than any other state during the Census period. Other fast-growing states included California, Florida, Georgia and North Carolina.

For 2015, Forbes listed the top ten fastest growing cities as Houston, Austin and Dallas, Texas; Raleigh, North Carolina; Seattle, Washington; Denver, Colorado; San Francisco; Fort Worth, Texas; Charlotte, North Carolina; and San Antonio, Texas.

Mindy Long's photo

Mindy Long

Before launching a full-time freelance career, Long edited NATSO's Stop Watch magazine. Prior to that Long worked as a staff reporter for Transport Topics, a weekly trade newspaper, covering freight transportation, fuel and environmental issues. In addition to covering the transportation sector, Long has written, reported and edited for a variety of media outlets. She was the Washington correspondent for WCAX-TV (CBS) in Burlington, Vt., a criminal court reporter in Chicago and a freelance copy editor for Kiplinger’s Personal Finance magazine in Washington D.C. Long hold a master’s degree from Northwestern University’s Medill School of Journalism in Evanston, Ill., and a bachelor’s degree in Communications from Westminster College in Salt Lake City.More
Source:
Stop Watch Magazine

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