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November 12 2018

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4 The Journal of Commerce | November 12 2018 www.joc.com William B. Cassidy US TRUCKLOAD SHIPPERS that were battered by rising transportation rates in 2018 aren't waiting compla- cently for the next wave of potential disruption. They're preparing for another round — albeit a lighter one — of price hikes in 2019 by reaching out to transportation and logistics providers in search of new ways to better work together (some call that collaboration) to secure capacity. Shippers came to the JOC Inland Distribution Conference Oct. 22-24 in Oak Brook, Illinois, to connect with carriers and third-party logis- tics providers, discuss problems with peers, and get a sense of where the market will take them in the next 12 months. If they came hoping to hear that a buyer's market in transporta- tion is around the corner, they were sorely disappointed. "When we talk to trucking companies, small companies, large companies, they are still getting those high single-digit contract increases" for 2019, Lee Klaskow, senior analyst for transportation and logistics at Bloomberg Intelligence, said at the conference, which drew 375 attend- ees and more than 100 shippers. He expects spot rates to rise moderately. "We're extremely bullish on the freight markets," Klaskow said. "People think that we have peaked in trucking rates. We don't think that we have peaked yet. We think we will peak in 2020." The 2017- 2018 economic surge that pushed freight demand past the limits of available capacity (available is the key word) "still has legs," though growth will moderate, he said. Picture it this way: In pricing terms, shippers made the climb from the Everest Base Camp (elevation, 17,700 feet) to Camp 3 (22,300 feet) in 2018. Congratulations! But we're still about 6,735 feet below the 29,035-foot summit. That's three quarters of the way there, give or take a few feet, with some hard climbing to go before we reach the pricing peak. Expecting that slog, shippers came to the conference for some frank discussions about ways to part- ner with carriers. Being "shippers of choice" was the starting point, not an end. "We're looking for insights into where we as a shipper can work with trucking companies on a tac- tical level," said Matthew Gordon, director of transportation engineer- ing for Anheuser-Busch InBev. The brewer wants to leverage data "and turn it into insights to put a tactical action plan together," Gor- don said. "It takes a lot of different approaches to move the needle." One approach is adding freight brokers, "but we're pretty much at a limit as to what we can support, because of congestion and not being able to keep things turning in an efficient way." Even shippers out front in their desire to collaborate and find effi- ciencies had a hard time holding onto capacity when freight volumes spiked this year, especially in June and July. "In the last several months, there were certain contracts I had to keep on an Etch-a-Sketch," said John Jan- son, global logistics director of apparel importer Sanmar. "Rates were chang- ing constantly. I'd be told, 'I know we have a contract, but you need to pay this much more if you really want to move that load.' Those things drive a wedge in the relationship." So does driver detention. Trucking companies at the conference ham- mered home the message that when it comes to securing capacity, it's all about how shippers treat the driver. "In the transportation space for us, it starts and ends with labor," said Craig Callahan, executive vice president and chief commercial officer of truck- load operator Werner Enterprises. "There's not a shortage of truck drivers, there's just a shortage of really good ones," he said. "Good ones" are the only kind Werner wants to hire, and that means higher wages, which keep pressure on rates. "Rates are on the move," he said. "That's going to have to continue to happen. Our guid- ance for rates this year was to be up 9 percent to 11 percent year over year." Werner and other carriers are spending a good share of the money on driver wages and capital expendi- tures, especially new Class 8 tractors, he said. Much of this year's massive tractor orders are for replacement vehicles, he said, not new capacity, a claim also made by Klaskow. Tractor orders are a good measure of sentiment, not future capacity, the analyst said. In a tight capacity market, with motor carriers dropping lanes and customers, collaboration is a neces- sity, not an option. "Carriers aren't going to accept shipper inefficien- cies," Mike Regan, chief relationship officer at TranzAct Technologies, said during a panel on trucking post-electronic logging device man- date. "If you are inefficient, you're going to pay for that." "If the carrier has the ability to be choosy, the only way shippers will be able to execute to the level demanded by their customers is to be 100 per- cent transparent with providers — no gaps, nothing hidden," said Rachel Snider, vice president of customer supply chain at GlobalTranz. That's a goal for Sanmar, Janson said. Sanmar also is changing how it looks at bids. "We don't know when the next downturn will be," he said. "We're prepared to shoulder risk if the marketplace goes higher or goes soft by looking at long-term contracts." That's a good thing, especially if the next economic downturn is more than a year away. Perhaps, this time, the lessons learned climbing to the peak will last long enough to survive the valley. JOC email: bill.cassidy@ihsmarkit.com twitter: @willbcassidy Collaboration imperative The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, November 12, 2018, Volume 19, Issue No. 23. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter From the Editor

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