For those who have either just entered or will soon be entering new multi-year pricing agreements there are a number of current news events that will have an impact on transportation providers costs of doing business; therefore, on shippers rates in the months and years ahead.
USPS Losses Continue
A $5.1b operating loss in fiscal ’11 following an $8.5b loss in fiscal ’10; now, the first quarter of fiscal ‘12 showed a loss from operations of $3.2b. In addition, the following statement is pulled from their Q1 news release, “Absent significant changes in the law to allow normal commercial freedoms, the Postal Service will default on both retiree health benefits pre-payments to the federal government due this year,” said Chief Financial Officer Joe Corbett. “Even if legislation changes or eliminates the prefunding payments, we may reach our $15 billion debt ceiling in the fall of this year.”
So we know changes are coming. Oh wait; these changes will require an act from Congress. Hmmm, is anyone else out there having an “Oh s--- moment” or am I the only one? Note to self- How can I help the USPS at this time?
UPS Negotiating TNT Takeover
If this were to happen; or, if there becomes a bidding war; the question becomes- How will the winning carrier pay for it and what impact will that have on your pricing?
No surprise to PARCEL readers, over the course of the past year the Big Two has emphasized their discipline to yield management and quality of revenue. TNT will not come cheap. They are one of the four largest express companies in the world, have one of the top two intra-Europe networks, with growth opportunities intra-China and other markets in S.E. Asia and South America. The question for you to consider, especially if the winner is one of your core carriers- How will they finance this deal and how will pricing change in order for the winner to hit their earnings and return on capital promises to their stakeholders?
Election year and the Transportation Bill
If I had written this article for last month’s e-Update I would have talked about how we may be on the verge of finally getting a Transportation Bill. However, in the last 24-hours I have seen the following headlines:
• “Tie-ups Mean No Transportation Votes Likely This Week”
• “Highway Bill Outlook Bleak, Ray LaHood Says”
• “Transportation Bill Faces Detours”
At some point Washington will need to stop kicking the can down the road. When they do, it will need to be paid for. Most likely by transportation providers who will pass the higher costs through to shippers via rate increases and/or higher surcharges. The only question is, will those rate and surcharge increases be single-digit or double-digit.
Regulatory impacts on transport providers
• CSA
• HOS
• EOBR
• Driver drug testing and medical exam requirements
For those who think, “That’s all trucking stuff and doesn’t apply to my parcels” think again. Tight capacity and the lack of commercially licensed drivers will work its way through the entire domestic distribution network.
In a presentation early last month, one of the leading industry financial analysts outlined how the issue list cited above could have an impact on productivity of 9% at the low-end up to 17% at the high. Wherever the real number falls within that spectrum, the impact on capacity and effective transportation planning will be real.
UPS-Teamsters
The current National Master Agreement is set to expire in August, 2013. So why worry about it in March, 2012? Well, the Teamsters started to communicate with their membership in the fall of last year about their plans to make gains. While recent contract renewals have been successfully reached before expiration, and there is no reason at this time to think otherwise, no one knows what will happen next year. Keep your eyes and ears open.
Suddenly that 4.9% average increase announcement doesn’t sound so bad.
Call to Action
Operation improvements, acquisitions, labor negotiations are up to the individual companies to deal with. Yet when it comes to operating constraints, legislation and regulations there is something we can do. The U.S. Postal Service, trucking companies, and other transportation providers can’t do it alone. They need our help.
First, get informed. Attend our industry’s leading trade shows, participate at the local level with trade groups and associations and subscribe to leading newsletter services. Work on identifying the impacts these issues will have on your business, if you can’t, find sources who can help you. Next, inform upper management or ownership so they can incorporate this knowledge in their strategic planning process. Finally, I ask you to consider sharing these impacts by writing your state and federal representatives. They need to hear specific examples of how their actions (or lack thereof) are influencing commerce in our country.
In addition, leverage this knowledge by using it in your conversations and negotiations with your carriers. In this age of carrier consolidation if you show your vendors that you have an understanding of their cost pressures you will find an ear more open to hearing about your concerns and needs.
Doug Kahl is Founder and Principal of Integrity Logistics Consulting Group; Executive Consultant Parcel, TranzAct Technologies, and a contributing writer to PARCEL
USPS Losses Continue
A $5.1b operating loss in fiscal ’11 following an $8.5b loss in fiscal ’10; now, the first quarter of fiscal ‘12 showed a loss from operations of $3.2b. In addition, the following statement is pulled from their Q1 news release, “Absent significant changes in the law to allow normal commercial freedoms, the Postal Service will default on both retiree health benefits pre-payments to the federal government due this year,” said Chief Financial Officer Joe Corbett. “Even if legislation changes or eliminates the prefunding payments, we may reach our $15 billion debt ceiling in the fall of this year.”
So we know changes are coming. Oh wait; these changes will require an act from Congress. Hmmm, is anyone else out there having an “Oh s--- moment” or am I the only one? Note to self- How can I help the USPS at this time?
UPS Negotiating TNT Takeover
If this were to happen; or, if there becomes a bidding war; the question becomes- How will the winning carrier pay for it and what impact will that have on your pricing?
No surprise to PARCEL readers, over the course of the past year the Big Two has emphasized their discipline to yield management and quality of revenue. TNT will not come cheap. They are one of the four largest express companies in the world, have one of the top two intra-Europe networks, with growth opportunities intra-China and other markets in S.E. Asia and South America. The question for you to consider, especially if the winner is one of your core carriers- How will they finance this deal and how will pricing change in order for the winner to hit their earnings and return on capital promises to their stakeholders?
Election year and the Transportation Bill
If I had written this article for last month’s e-Update I would have talked about how we may be on the verge of finally getting a Transportation Bill. However, in the last 24-hours I have seen the following headlines:
• “Tie-ups Mean No Transportation Votes Likely This Week”
• “Highway Bill Outlook Bleak, Ray LaHood Says”
• “Transportation Bill Faces Detours”
At some point Washington will need to stop kicking the can down the road. When they do, it will need to be paid for. Most likely by transportation providers who will pass the higher costs through to shippers via rate increases and/or higher surcharges. The only question is, will those rate and surcharge increases be single-digit or double-digit.
Regulatory impacts on transport providers
• CSA
• HOS
• EOBR
• Driver drug testing and medical exam requirements
For those who think, “That’s all trucking stuff and doesn’t apply to my parcels” think again. Tight capacity and the lack of commercially licensed drivers will work its way through the entire domestic distribution network.
In a presentation early last month, one of the leading industry financial analysts outlined how the issue list cited above could have an impact on productivity of 9% at the low-end up to 17% at the high. Wherever the real number falls within that spectrum, the impact on capacity and effective transportation planning will be real.
UPS-Teamsters
The current National Master Agreement is set to expire in August, 2013. So why worry about it in March, 2012? Well, the Teamsters started to communicate with their membership in the fall of last year about their plans to make gains. While recent contract renewals have been successfully reached before expiration, and there is no reason at this time to think otherwise, no one knows what will happen next year. Keep your eyes and ears open.
Suddenly that 4.9% average increase announcement doesn’t sound so bad.
Call to Action
Operation improvements, acquisitions, labor negotiations are up to the individual companies to deal with. Yet when it comes to operating constraints, legislation and regulations there is something we can do. The U.S. Postal Service, trucking companies, and other transportation providers can’t do it alone. They need our help.
First, get informed. Attend our industry’s leading trade shows, participate at the local level with trade groups and associations and subscribe to leading newsletter services. Work on identifying the impacts these issues will have on your business, if you can’t, find sources who can help you. Next, inform upper management or ownership so they can incorporate this knowledge in their strategic planning process. Finally, I ask you to consider sharing these impacts by writing your state and federal representatives. They need to hear specific examples of how their actions (or lack thereof) are influencing commerce in our country.
In addition, leverage this knowledge by using it in your conversations and negotiations with your carriers. In this age of carrier consolidation if you show your vendors that you have an understanding of their cost pressures you will find an ear more open to hearing about your concerns and needs.
Doug Kahl is Founder and Principal of Integrity Logistics Consulting Group; Executive Consultant Parcel, TranzAct Technologies, and a contributing writer to PARCEL
