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‘Mother of Capacity Crunches’ To Emerge Over Next Decade

Shorter supply chains, increased e-commerce, more manufacturing activity and of course a long-awaited capacity shortage are expected to re-shape trucking and logistics needs in the U.S. going forward.

As reported by Fleet Owner magazine, John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp. recently made predictions that could have both good and challenging outcomes for trucking.

On the plus side, the rise of automation and 3D printing in manufacturing, alongside a growing desire to shorten global supply chains in order to cut costs, should bring more production back to North American shores and consequently increase freight demand, in his view.

“Ultimately, rapid delivery of infinitely flexible/tailored products is possible, if not likely, within the next 10 to 20 years,” Larkin predicted. “Of course, the substrate material used by 3D printers will have to be transported into the urban markets by bulk carriers, of which we will likely have too few.”

When all of that, plus an increased need for more “transportation” is superimposed on top of increased regulation and capacity constraints caused by a worsening labor shortage for truck drivers, the stage could be finally set what he’s often described as “the mother of all capacity shortages.”

“Again, capacity shortages enable carriers to select the customers, lanes, and freight that will result in the highest utilization of equipment and labor, the smallest number of empty miles, and the highest unit revenue,” Larkin stressed. “Margins and return on capital should benefit [motor carriers] over the next decade, perhaps dramatically.”

Yet not all of his future projections bode well for some trucking sectors, especially when it comes to e-commerce.

Larkin believes e-commerce should continue to grow market share from its current level – some 7.4% of retail sales as of the third quarter of 2015 – with more and more consumers opting to purchase products on-line with desktop or mobile devices.

“And more and more will opt for home delivery, delivery to the trunk of one’s automobile, pick up at a store, or pick up at a nearby point,” he stressed. “The transportation emphasis will therefore be centered around keeping urban fulfillment centers stocked and the high velocity last mile delivery function.”

Some other future trends Larkin believes will impact the trucking and logistics include:

  • The supply of skilled labor to drive trucks, operate forklifts, maintain aircraft, etc., will almost certainly create a shortage of supply chain capacity over the next decade.
  • That shortage will enable logistics services providers – with and without assets – to optimize margins and returns on capital by allocating scarce resources to customers willing to pay the highest price and/or those will to collaborate with supply chain service providers to maximize utilization.
  • Regulations could create a capacity crisis heretofore not experienced
  • The continued migration of consumption, and increasingly production, to the southeast, southwest, and west sections of the U.S. (excluding California, except in the case of Silicon Valley) will keep reshaping transportation and distribution patterns, likely leading to shifts in truck freight lane balance and equipment availability. Motor carriers not dynamically monitoring and adapting their networks to reflect changes in lane balance, equipment utilization rates, empty mile ratios, and pricing could find profitability hurt significantly.

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