For transportation managers, one upside of this recession is the easy availability of trucks and drivers at a reasonable price. But don't get too comfortable - things can change on a dime.

"It almost feels like you go to sleep one night with lots of capacity at a low price, and you wake up the next morning to find that you can't find a truck at any price." That's Jim Damman, president of Exel Transportation (http://www.exel.com/exel/ets_home.jsp), talking about the plight of shippers in 2004, when the last recession came to an abrupt end. It was replaced by severe congestion throughout the system, making some suppliers yearn for the good old days of stagnant demand.

Damman believes we're in for another "fairly violent turn" in the balance between transportation supply and demand. The only question is when. His best guess is the second half of this year, with activity in the first part remaining "relatively flat."

Fair enough, even if you happen to remember those "second half of the year" predictions for recovery that were put forth by numerous prognosticators one year ago. But the interesting thing about Damman's view is that the uptick in activity doesn't haven't to be that great to play havoc with transportation infrastructure. In fact, he doesn't expect that big of a volume boost in the second half of 2010, compared with last year.

The reason why a small increase in demand could have a big impact is simple: there's a lot less capacity out there right now, compared with when the latest recession hit. Carriers responded to the slump by pulling out huge numbers of ships, planes, trucks and trains. Some of that equipment - containerships in Singapore, planes in the California desert - remains standing by for fairly quick reactivation. But a lot of it is never coming back. A large number of trucks were sold off to overseas buyers in 2008 and 2009. Many smaller operators went out of business at the same time. To make up for the shortfall, an entrepreneur must have access to substantial credit in order to enter the capital-intensive transportation market - and good luck in finding it. Or, the big survivors would have to start flooding the pipeline with equipment, instead of holding back as long as they can and reaping the benefits of soaring freight rates. Want to guess which path they'll take?

The prospects for trucking are cloudy. The less-than-truckload (LTL) market "is definitely shaky," say Damman. And a spike in demand might not be the prescription for a return to health. On the contrary, U.S. economic recovery will likely bring a return of the driver shortage that has plagued the industry on and off - mostly on - for years now. The construction industry competes with motor carriers for essentially the same pool of labor, so if the housing market comes back, expect to see an exodus of drivers back to jobs that pay well and let them go home at night. What's more, the driver population is aging, and there's no ready supply of youngsters eager to take its place in the cab.

The rail picture is somewhat brighter. Damman notes that Class I railroads have invested heavily in new equipment and infrastructure, determined not to be caught out by a surge of activity like they were in 2004. Locomotives that were removed from service for lack of need have been well-maintained and are supposedly ready to go. "A number of people in the rail industry have a pretty high degree of confidence," he says. "They've learned a lot from issues of the early 2000s." The question still to be answered: can the rails keep service quality high when they're inundated by business?

Again, though, that crucial question of timing. Damman sees a "better than even" chance that activity will begin picking up in the second half. Real recovery could be delayed until 2011, though, and if that happens, it probably won't be until the second quarter of next year before we'll see any meaningful increase in shipment volumes. The variables are many - fuel prices, consumer spending patterns, unemployment levels, the residential and commercial mortgage markets, the health of banks and the availability of credit, to name but a few.

In the meantime, smart companies are using the downturn to make real changes in their operations. Capital budget cutbacks are the most visible result, but more creative solutions are also in the works. Damman says Exel Transportation has gone over its organization "with a fine-toothed comb" in the past two years, making adjustments wherever inefficiencies could be found. And manufacturers, walloped by high fuel prices and rising levels of supply-chain risk, are reconsidering their decision to make everything in China. Some are thinking about bringing production back to North America, especially Mexico. Damman cites an Exel Transportation whitepaper from last year which put forth the premise that "if you look at the total logistics cost of manufacturing certain products in Asia, with ultimate consumption in the western hemisphere, the numbers don't really work very well." That's especially true for items with a high degree of obsolescence, he says.

So shippers and carriers are being asked to wait patiently - who knows how long - yet be ready to respond instantly when the tide turns. Damman's advice in the meantime is to focus on the things you can control. "A slowdown like this does kind of give everyone pause," he says. "It separates those who can take advantage from those who think of it as something that's being done to them. We've tended to take the former view."

- Robert J. Bowman, SupplyChainBrain

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