October 21, 2016 - posted by Rachel Bonello
An impending downturn is something transportation professionals need to be prepared to cope with.
Experienced transportation logistics professionals understand that they work in an industry that is extremely sensitive to the tidal forces of the national (and global) economy. Transportation is in many ways a barometer of recession and recovery. Subtle shifts in shipping patterns and volumes can serve as an early indicator of more significant changes to come.
With that in mind, the transportation logistics industry finds itself in an auspicious position as we move into the middle part of 2016. There are signs of stabilization and of some leveling from the steady and sustained recovery and growth trajectory that has held sway in the wake of the punishing recession in the late 2000s. At the same time, there are some early indications that the next cyclical downturn may be around the corner.
For professionals operating in this space, understanding how to prepare for the coming correction is enormously important. There are a number of meaningful and tactical decisions you can make right now that can prepare your business for leaner times and potentially blunt the impact of a downturn on your bottom line. It’s not about just knowing what to look for in the marketplace, but appreciating the value of perspective and preparation.
So what signs should transportation logistics professionals be looking to indicate a potential shift in economic trajectory?
Before we answer that, let’s get a disclaimer out of the way. This is an art, not a science, and there are so many wild cards currently on the table that meaningful analysis is challenging until those variables are resolved. The most obvious example is the upcoming presidential election, but there’s reason to believe that an increasingly volatile and interconnected global marketplace is making the once relatively predictable ebb and flow of a cyclical industry a little tougher to forecast.
That said, there are always prognostic indicators out there that experienced professionals should pay close attention to. The severity and duration of the last recession was historic. As carriers have tooled back up, reassessed their capacity and adapted to the shape of the new transportation landscape, they have been able to dictate terms and have “owned” the market. That control comes and goes with the economy. When the cycle turns, capacity becomes more valuable–meaning buyers begin to have more control over transportation providers. Today, we see buyers rapidly gaining substantially more leverage and control over the marketplace.
Other signs that things might be at a turning point can be observed throughout the industry. We have witnessed a kind of leveling out or stabilization across the transportation logistics landscape. It has become evident that manufacturers are running their businesses better and more efficiently than ever before, and we are seeing fewer expedited orders, with little to no premium/air freight shipping. Trucks are running at full capacity, and better planning across the board means more transport by rail is made possible. Along with the shift to provider leverage that is already underway, these are key indicators of a pivoting market.
Barring some dramatic or unforeseen global crisis or shocking geopolitical upheaval, I don’t anticipate the next downturn to be a huge crisis or a dramatic slowdown. But, a recession is coming (possibly as soon as the first or second quarter of next year), and that is natural, expected and inevitable.
If we accept that forecast to be a reasonable one, the next step is to figure out what transportation logistics companies can do now to prepare:
Get your financial house in order
Get your balance sheet together. Keep your debt and financial exposure low. Remember that interest rates remain at historically low levels, but it won’t stay like that forever. There’s no need to panic; you have time. Lock in long-term arrangements with lending institutions now where possible. Refocus on operational efficiencies and optimizing staff size.
Diversify your operation
Nothing is “recession proof,” but certain industries are more recession resistant than others. Health and beauty essentials, for example. A family may hold off on buying an expensive new car in leaner times, but if a hairdryer breaks, that’s a purchase few will pass on making. With that in mind, consider diversifying your operations to avoid putting all of your eggs in one vulnerable basket.
Cultivate select relationships
It’s always a good idea to maintain strong and mutually respectful relationships with transportation providers. If you don’t beat them up when you have the upper hand, they are much less likely to take advantage of you when it’s their turn. Where transportation experts used to run these companies, today we see more Wall Street interests and accountants driving decision-making. Going into the first quarter of 2017, make it a point to pick and choose your friends thoughtfully: cultivate relationships strategically–with leadership and past performance in mind.
Calibrate expectations and maintain professional standards
Make sure to manage employee expectations for bonuses and pay scale, and work to keep your team focused on doing more with less and keeping efficiencies high. Over the last 18 months or so, some operators will have inevitably gotten a little soft and a little loose around the margins. Tighten those minor inefficiencies up now so that, when the leaner times come, there will be less of an impact.
Again, the next cyclical shift is not likely to be a crash, but more of a slowdown. For transportation logistics professionals, looking ahead and engaging in some strategic and well-timed downshifting will help ensure that you can reduce speed and still maintain momentum–all without having to slam on the breaks.
By: Brandon Stallard, as seen in the Fall 2016 issue of Transportation & Logistics International