• Analysis by: GLG Expert Contributor
• Analysis of: Top Transport Concerns: Sluggish Economy, Unwise Legislation
• Published at: www.worldtrademag.com

Summary

Of all modes of transportation trucking is the largest in both shipments handled and tonnage.  According the Bureau of Transportation Statistics trucking handled 71 percent of the total value of all merchandise transported.  Rail companies have capital and assets that cannot be sold off during lean times.  The perception of rail transport is that you sacrifice service for cost.  Savings are obtained at the expense of transit times and increased damage rates.  The debate cannot alter the facts.

Analysis

In the article,  Michael Schmid said  “We need to pay attention, there is a certain amount of anti-truck rhetoric out there right now. We do need to consider balance, but it can shift emphasis and funds away from highways.”

Diverting funds from the nations highways to rail infrastructure will ultimately create a bottleneck in the supply chain.  The Obama administration and the Department of Transportation (DOT) is implementing a “last-mile” policy,  The thinking is government can reduce road congestion and greenhouse gasses by increasing rail transports and using trucks for the final few miles between the rail stations and the receiver.

Additional pressure will be placed on the transporter from the Food and Drug Administration (FDA) in the form of food safety.  In a new release on April 30, 2010 the FDA is asking commercial food transporters to follow new guidelines to reduce the chances of physical, chemical, biological, and other risks during transport.  In the advance notice of proposed rule making (ANPRM) the FDA requested in writing input from all parties on new rules including regulations on sanitary practices from shippers, carriers by motor vehicle or rail vehicle, receivers, and others engaged in transporting food.  Safety measures will include transit temperature, monitoring for pests, proper working condition of vehicles used, that pallets are of good quality, and sanitary measures are followed in the loading and unloading of foods.  You can read more on this subject here.

As a result of multiple legislation and regulatory initiatives major distributors are shifting transportation policy to prevent supply disruption.  Economic realities often create permanent change in how business delivers products to market.  Manufactures deliver product to over 4000 Wal-Mart and Sam’s Club locations in the United States.  In a transportation policy shift, Wal-Mart will begin to transport products delivered to all store locations on the company trucks.  The decision to take over transportation services is an effort to reduce cost and pass the savings to the consumer.

Freight rates have been market driven for the past few years.  The economic recession has caused many small to medium carriers to go under leaving a gap in available assets when the economy improves.  Former Wal-Mart executive Randy Huffman who now runs the consulting firm GBD 360 said, “That aligns with Wal-Mart’s taking cost out of the supply chain for their benefit and not their competitors,” he said. “Suppliers are going to have to apply that increased freight cost somewhere, so it’s more than likely it will be passed onto other retailers.”  Read more on the subject here.

The trucking industry is a support function of commerce.  They are the means to transport raw material to manufactures and finished goods to market.  I believe Wal-Mart will be the first in a trend of corporate policy changes when it comes to transportation.  The most concerning element is that government policy is shifting corporate policy and not the marTransportatioTket.

Contributed by a Member of the GLG Energy & Industrials Councils