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Rising Concern Over Trucking Shortage and Tariffs

The potential trade war has been sparking considerable concern within the freight and logistics sector. With sanctioned countries threatening and even enacting their own forms of punitive retribution, many are wondering what the overall effects of the tariffs and trade restrictions will be on the industry as a whole.

The growing shortage in the trucking industry is also becoming a more significant problem.

Tariffs aren’t the only problem, however. The growing shortage in the trucking industry is also becoming a more significant problem. As a large portion of the trucking community is approaching retirement age, trucking companies are scrambling to find new bodies to take up the wheel. Despite these issues, the economy is enjoying a period of solid growth for the start of the third quarter, but according to a series of surveys conducted by the government, we might be looking at a hard cap on performance in the future.

“Responses from the Federal Reserve’s Beige Book and data from regional business surveys continue to point to an economy that is growing at a healthy pace, as a pickup in consumer spending and continued strength in business investment have sustained activity in the 2nd quarter. However, a, look at the details within the surveys suggest that demand in the economy is actually stronger, and the inability to find carriers to move the available freight has led to production delays and unfilled orders,” says FreightWaves.

Same Report from Around the Country 

The upshot is that the Beige Book shows a continual, albeit modest, growth in the economy across the country. However, there are a number of regional business centers that have concerns about the new tariffs and the trucking shortage. The surveys highlight that each of the 12 major business districts is seeing higher levels of consumer spending through June and early July. This has created a talent shortage, leaving many companies scrambling to find qualified workers to fill the required positions to sustain the growth.  

Among the top tariff concerns is the potential for escalation into an all-out trade war with China. The announcement of the tariffs and China’s response to them have increased the pressure for manufacturers over the past several weeks which are cutting into profit margins as companies have yet to start passing the bill to their customers. “Respondents in each district called attention to the tariffs, with one respondent from the Philadelphia district noting ‘that the effects of the steel tariffs have been chaotic to its supply chain—disrupting planned orders, increasing prices, and prompting some panic buying.’ Several districts noted that the tariffs had not had a material effect on demand or business activity, however, with respondents from Boston citing ‘concerns about tariffs but none cited trade issues as affecting demand or hiring and capital expenditure plans,’ FreightWaves explains.  

The Effect of Capacity on Performance  

Half of the Federal Reserve districts have cited the shortage of trucking capacity. Specifically, the shortage of commercial drivers has caused a disruption in supply chains and business in the past few weeks.  

Given how connected the supply chain is to all aspects of the commercial industry, the driver shortage is causing a cascade effect for a number of businesses.

Given how connected the supply chain is to all aspects of the commercial industry, the driver shortage is causing a cascade effect for a number of businesses. The Boston retail sector, for example, notes that due to their own labor shortages combined with higher freight costs caused a 10 percent increase in labor costs compared to the rates over the same time last year. “Results from all three districts also showed that manufacturers continue to struggle to fill orders in the sector. Data from the regional indexes showed that unfilled orders were rising in all three districts, with the Philadelphia district reporting almost a 14-point jump. This continues the recent trend of rising order backlogs and orders that cannot be processed and would suggest that growth in the economy would be even stronger if only companies could find the workers, supplies, and capacity to meet all of the existing demand,” FreightWaves concludes.  

Demand for freight is high, and the economy is continuing to grow which means a potential opportunity for the industry as a whole, so long as the can overcome the challenges ahead.  

Many firms in the trucking industry are looking for ways to help mitigate the hardships brought about by the driver shortage including higher wages for drivers. Until they can better tap into the younger generations for new drivers, the driver shortage will continue to grow as more drivers reach retirement age. As for the tariffs and the potential for a trade war with China, the best option is for manufacturers to begin sourcing other suppliers for materials or decide how best to negate the increased costs. While this all seems rather dire, there is a considerable upside to this. Demand for freight is high, and the economy is continuing to grow which means a potential opportunity for the industry as a whole, so long as it can overcome the challenges ahead.  

Preparing For Upcoming Challenges

BlueGrace helps our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!

Is Your Supply Chain Ready for NAFTA Changes?

The North American Free Trade Agreement (NAFTA) is about to be on the block for renegotiation. Possible changes from the renegotiation can take on many forms including, but not limited to: 

  • Adjustments to the Rules of Origin for Product Content  
  • More-stringent Labor Standards,  
  • Possible withdrawal return to World Trade Organization most-favored-nation tariffs.  

These potential changes to NAFTA will all have serious and important implications for the supply chain as well as the profitability of U.S. based manufacturers and exporters. However, as negotiations are still ongoing, a lot is uncertain about the outcome of these negotiations including the outcome and possible consequences for companies. As these changes can be offset or made worse by currency adjustment, there are more than a few company executives that are watching the events with bated breath.  

One of the biggest changes is the “border adjustment” which could cause such a currency fluctuation.“The proposed “border adjustment” that is part of a tax reform package Congress is debating could cause the U.S. dollar to appreciate relative to other currencies. Under the plan, companies would not be able to deduct the cost of imports from their revenue, a move that today enables them to lower their overall tax burden. At the same time, exports and other foreign sales would be made tax free,” according to the Harvard Business Review. 

Unfortunately, the uncertainty is causing a great deal of hesitation among U.S. business leadership teams as no one is quite certain how these changes are going to play out.  

He who hesitates, is lost.” Joseph Addison’s Cato 

As the old maxim goes, waiting for a more clear picture of the future could have disastrous results for the supply chain and the bottom line for many companies. So what steps should you be taking to prepare your operations for the NAFTA renegotiation?  

Hope for the Best and Prepare for the Worst 

“Successful companies thrive in uncertainty by incorporating change into their strategy. Leadership teams can limit the negative consequences of a possible NAFTA withdrawal and currency moves by adopting an approach that anticipates several future scenarios. This approach also applies to companies based in Mexico and Canada, as well as other countries, such as China, with trade agreements that may be vulnerable to U.S. political upheaval,” HBR advises. This is doubly true given that the Trump administration has been implementing trade tariffs which are being met with equally difficult conditions from U.S. trading partners.  

As with most aspects of the supply chain, flexibility and agility are going to be the key to success.

As with most aspects of the supply chain, flexibility and agility are going to be the key to success. Companies will need to focus on the risks that matter most to their operations and engage in a continual cycle of execution, monitoring and, most importantly, adaptation. Continuing to progress and evolve during these volatile times will prevent stagnation and allow companies to react to challenges rather than trying to run damage control.  

Actions to Consider 

There are a number of ways that these changes and uncertainties can be mitigated. Companies with a better reaction time will fare better than those who are slow to react, giving them an edge over their competition. Companies should develop and have plans to implement a response to any of the aforementioned changes to NAFTA.  

These are the three main directives suggested by Bain and Company, a Global Management Consultancy based out of Boston, Massachusetts.  

  • No-regret moves. Some actions will increase a company’s competitive edge, no matter what scenario plays out. They include improving cost management or operational effectiveness in procurement, supply chain, and inventory management. NAFTA renegotiations heighten the urgency to look for new operational efficiencies, as they give companies greater flexibility to face new treaty restrictions. For example, a retailer that becomes more efficient will have the option of not passing on cost increases to consumers — without hurting its profit margins. 
  • Options and hedges. Leadership teams that develop strategic options and hedges for a variety of future scenarios navigate better when new developments unfold. These could include expanding procurement options or increasing volume sourced from competitive local suppliers. For example, back when NAFTA was being negotiated, several Mexican companies, such as auto parts supplier Rassini, seized the opportunity to invest in modernizing their operations so they could expand beyond their local customer base to compete globally. One option today is automating operations to some degree. If NAFTA is repealed, it would be easier to move a partially automated production line back to the U.S. than a highly manual line. The option value lies in the cost of moving, relative to paying the border adjustment and higher World Trade Organization import tariffs that would kick in under the withdrawal scenario. 
  • Big bets. The most challenging balancing act involves large-scale investments that have different payoffs depending on how future uncertainties play out. Any company that keeps its supply chain and manufacturing footprint plans for North America may be making a big bet, and management teams should assess their investment plans from this perspective. Companies could go even further by expanding production capacity or switching suppliers from foreign- to U.S.-based companies. Or they could make a contrarian bold bet, as is being contemplated by Ammex, a disposable-glove distributor based in the U.S. that sells to labs, hospitals, and other companies around the world. Ammex is looking to invest in e-commerce and double down on Mexico, a key developing market for the firm, while nervous competitors draw back from the country. If a big bet looks too risky to take immediately, companies can wait for greater clarity and move quickly once changes look likely. 

Given that most companies have the technology in place to monitor such changes, they should also be able to map out appropriate responses to them as well. Armed with the right intelligence at the right time, a savvy company can make moves to put them ahead of the game and still come out profitable even with the incoming tariffs. 

Quick response and right thinking strategies will win out the day as these new trade deals are brought into the light.

The full effects of NAFTA changes are unknown and will be for a time. Mexico is pushing to have the deal finalized with the Trump administration by the end of August, but the long-term effects on supply chain speed, costs, and inventory could take years to manifest fully. Between changes to NAFTA and the tariffs, successful companies will need to embrace radical change as part of their day to day operations. They will need the tools in place to anticipate and respond to a multitude of possible outcomes faster than the competition and before any such outcome can be finalized. Quick response and right thinking strategies will win out the day as these new trade deals are brought into the light.

How Can A 3PL Help?  

No matter the situation, we are the experts here to simplify your freight needs and give you the visibility needed to stay ahead of the game.

BlueGrace helps our customers navigate through the many obstacles that can occur in their supply chain. No matter the situation, we are the experts here to simplify your freight needs and give you the visibility needed to stay ahead of the game. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or feel free to fill out the form below to speak to one of our freight experts today!

Accelerating Business Growth And Lowering Cost With Data Analytics

Too many companies are experiencing transportation and freight expenses as one of their top three costs. Smaller companies feel the pinch the most. They typically incur greater logistics costs than medium and large sized companies, as do companies that sell lower product value goods. In a recent survey, 32% of online retailers expected logistics and delivery to be their biggest cost this year. The expense of moving products or assets to different destinations should not be the leading cost in any business, if possible. (See How Does Freight and Transportation Fit into your Budget? 

What’s behind the dramatic rise in transportation costs in nearly every sector? There are simply not enough drivers on the road to keep up with demand.  

Truck Capacity Crunch 

The first explanation for the rise in transportation costs is the truck capacity crunch.

The first explanation for the rise in transportation costs is the truck capacity crunch. See “Rising Costs and Lower Capacity in the Domestic Truckload Market.” There are simply not enough drivers on the road to keep up with demand. “Surging transportation demand is spurring trucking companies to charge as much as 30 percent more for long-distance routes compared with prices a year ago, and they’re hard pressed to add capacity because of a long-standing shortage of drivers,” explains Thomas Black, in Bloomberg’s “There Aren’t Enough Truckers, and That’s Pinching U.S. Profits.” Tyson Foods Inc anticipates paying $200 million more for freight in 2018 from the previous year. Kellogg Co’s logistics costs are expected to rise by nearly 10 percent. 

Chief Executive Jim Snee of Hormel Foods, the maker of Skippy peanut butter and SPAM, says, “We don’t believe we’re going to recoup all of our freight cost increases for the balance of the year.” He informed Reuters that the company’s operating margin sank to 13.2 percent, from 15.6 percent due to rising costs – freight among them – in the most recent quarter. 

Stringent Demands of the ELD Mandate 

The second reason is the new ELD (Electronic Logging Devices) Mandate which entered into force on December 18, 2017.  Drivers are now driving less, in keeping with the new regulations. Fewer drivers on the road at any given time due to the ELD Mandate is equivalent to taking 200 to 300,000 or so trucks off the market, according to a podcast episode by Freight Savings Tips.

Truck Driver Wage Increase

With fewer people getting licensed to become truck drivers, and older drivers retiring (see “Attracting the Next Generation of Truckers”), it will be inevitable that wages will need to go up to attract much-needed drivers. To cover the cost of truck driver wage increases, truckload rates will inevitably rise. 

Fuel Price Hikes 

The rise in fuel prices is especially hard-hitting for companies as fuel represents a significant portion of freight spends – often appearing as a surcharge on carrier invoices or embedded in line-haul rates. Fuel, according to the Harvard Business Review, is often the “largest inadequately monitored part of a company’s cost structure.” 

Tom Kloza, global head of energy analysis for Oil Price Information Service calls this season “the most expensive driving season since 2014.”  

Congestion In Cities 

With increased traffic volumes and customer expectations on delivery times, the pressure to perform – quickly, and in congested parts of the city (i.e., tricky navigation) is very real. Consumer changes and complicated last-mile delivery obligations require money which must then be offset elsewhere. 

The main solution – and greatest hope for companies engaged in shipping activity –  is data analytics.

What To Do: It’s All about Data Analytics 

The main solution – and greatest hope for companies engaged in shipping activity–  is data analytics. Data analytics lessen the cost of bringing products to retailers or customers by uncovering new possibilities.  

Transportation spending covers many dimensions. Therefore, there are many opportunities to control the spend. These solutions come in the form of reconsidering warehouse processes, leveraging IT systems, revising package and product designs to alleviate excess weight and increase shipment density, or “nearshoring” (reducing the number of miles shipments travel). 

Bringing in the Experts

Companies who have relied on BlueGrace’s tried-and-true data analytics have recouped losses from mistakes they have made in the past. Consider the consumer packaged good company that underwent BlueGrace data analysis to determine what the “true cost” of its orders were (using information from historical orders) when freight cost was allocated.

The company executives were able to “drill down and allocate a freight cost to not only the customer level but the customer location, customer location type (Direct to Store or Distribution Center) and even down to the SKU level.

The company executives were able to “drill down and allocate a freight cost to not only the customer level but the customer location, customer location type (Direct to Store or Distribution Center) and even down to the SKU level. Since freight cost was not passed through to the client, this would either show a net margin loss on certain orders or opportunities to reduce the freight cost allocation on others to become more competitive. The result highlighted regions that were more costly to ship to, products that did not have enough margin potential to consider shipping unless they met a specific minimum requirement and insight into regions of the country that would benefit from an additional warehouse location.” 

With BlueGrace’ specialized business intelligence, processes become clearer. Transportation costs are curbed relative to sales and overall budget. Ready to find your own clarity today? Feel savings relief by taking the first step. Watch the video on our proprietary game-changing data service here and talk to an expert today. Fill out the form below or call 800.MY.SHIPPING (697-4477) to be connected to a Transportation Management Expert. 

The End of NAFTA Could Be a Nightmare for Truckers 

Recent actions from the U.S. President, Donald Trump, have truckers more than a little concerned. During his time on the campaign trail Trump has made his opinion on foreign industries, Mexico in particular, very clear. Touting his “America First” slogan, Trump promised the American people that he would focus on bringing jobs back to the United States and would renegotiate trade agreements to put the U.S. in a better position.  

While that sounds all well and good, the actual ramifications of Trump’s trade tinkering could be disastrous.

While that sounds all well and good, the actual ramifications of Trump’s trade tinkering could be disastrous. He’s already threatened higher tariffs on trade with Mexico and now the president has his sights set on another target, solar energy. His most recent legislative move would place a 30 percent tariff on any solar equipment that is manufactured outside the United States.  

According to Bloomberg, the 28 billion dollar solar industry is heavily reliant on these outsourced parts. In fact, 80 percent of its supply chain is centered around the acquisition of them. Bloomberg also says that this doesn’t just affect the renewable energy industry, driving it to the point of being cost prohibitive, but it could also cause 23,000 Americans to lose their jobs. The tariff would not only target solar panels, but a number of consumer electronics and the steel industry. It’s highly likely that these tariffs could create restriction on US-made goods in other countries.

Truckers Fear of NAFTA Ending 

The North American Free Trade Agreement has been a crucial element for the U.S. economy since its implementation back in 1994. The agreement was aimed at reducing or eliminating tariffs and other trade restrictions between partnering countries; Mexico, Canada, and the United States. As partner countries are attempting to work together to renegotiate the deal, the process is being dragged down with “contentious negotiations” and threats of an all-out withdrawal by the United States.  

While many in the industry will agree that the trade agreement is due for some updates and renegotiating, it is Trump’s critical attitude toward these trade agreements that have the freight transportation industry concerned.  

“NAFTA has been a major point of contention since it was first implemented over two decades ago. Critics have argued the trade deal has benefited large corporations or foreign workers at the expense of domestic workers. But to industry groups, the trade deal has been vastly more beneficial than not,” says an article from Transport Topics 

The trade agreement has been very helpful in opening up the markets between the three participating countries and has been a driving force in the success of the trucking industry. With over $6.5 billion in annual revenue for the industry, NAFTA is responsible for creating jobs for over 46,000 people; 31,000 of which are U.S. truck drivers.  

Restricting foreign trade in certain circumstances could hurt both domestic companies and consumers by limiting the flow of goods they might rely on

“President Trump hopes to use trade and other reforms to encourage domestic production – which could result in more jobs. But some domestic production faces barriers that other countries don’t have. Restricting foreign trade in certain circumstances could hurt both domestic companies and consumers by limiting the flow of goods they might rely on,” Transport Topics adds.  

The Fallout from the Death of NAFTA  

So what would happen if the United States were to withdraw completely from the free trade agreement? Most agree that the results would be disastrous.  

The disagreements and heated rhetoric have fueled concern throughout the economy. Many businesses rely on the massive trade deal, which could make them vulnerable depending on how the negotiations end and create uncertainty in the process. Alliance of Automobile Manufacturers Federal Affairs Vice President Jennifer Thomas notes that there are two bad outcomes that could potentially come from these talks. The first of these scenarios is that NAFTA becomes unworkable and useless due to unrealistic expectations. The second, and potentially most frightening, is we simply lose NAFTA altogether because the U.S. has pulled out entirely.  

The trucking industry could stand to suffer the most, as transportation from the U.S. to either Canada or Mexico is predominantly done by trucking.  

It’s more than just the threat of higher tariffs that would hurt American consumers, who would end up taking the brunt of the increased costs. There are a significant amount of jobs at stake, all of which are heavily reliant on NAFTA. The trucking industry could stand to suffer the most, as transportation from the U.S. to either Canada or Mexico is predominantly done by trucking.  

According to a report released last December by The American Action Forum, a center-right nonprofit, pulling out of NAFTA would increase consumer costs by at least $7 billion and businesses would be hit with $15.5 billion in new tariffs.  

As NAFTA negotiations are still ongoing there is hope that the trade agreement will make it through. However, with the Trump administration avidly arguing against it, there’s really no telling what form the trade agreement will take in the end.

How Can A 3PL Help?  

While we can’t control national policy, we can help our customers navigate through it. When retail stores added ‘Must Arrive By’ Dates, we were able to offer solutions. When Walmart went a step further and tightened their delivery rules with OTIF (On Time In Full), we successfully assisted many of our retail customers. With the ELD mandate in full effect, we’re actively helping our customers navigate issues that cause capacity and expensive penalty problems. No matter the situation, we are the experts here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, feel free to fill out the form below: