Executive Briefings

Expect Measured Growth in Transportation and Logistics in 2011 - and Customers to Demand More Value

For our industry, 2010 was certainly not as bleak as the prior two years. But it wasn't time to exhale either. While the U.S. economy grew 2.6 percent in the third quarter, the jury is still out as to whether this growth will be sustained, sputter out, or worse, dissolve into another recession.

For transportation and logistics companies, this means that customer scrutiny of our services and pricing will continue to be as intense as it has been since the bottom fell out two years ago. In fact, in many cases, customers who have learned how to maximize their vendor and partner investments will be putting their negotiation skills to good use in 2011.

This increasingly competitive environment, coupled with rising fuel costs and budget cutbacks, could make the pressure we experienced in 2010 pale in comparison to what we're going to face in the coming year.

Companies that will be successful in 2011 will put a strong emphasis on value and customer service. It sounds simple. But taking care of the basics will ensure customers get, and see, value for their transportation dollars - and that's the key to winning and retaining business in this environment.

Let's drill into that more. Here's a look at the year behind us, the year ahead, and the four areas of your business you should look at to ensure you'll win in 2011.

How We'll Remember 2010

Transportation and logistics was one of the industries hardest hit by the recession. Inventories plummeted, pricing pressures escalated, and idle capacity soared.

Transportation companies that took a hard look at the way they did business and ratcheted up the value they were providing customers were the ones that did well in 2010. These companies faced the recession head-on. They were willing to look beyond short-term profitability to make the hard decisions necessary to continue to serve their customers. They maintained the staffing necessary to perform when needed. They kept offices open despite some losses, and were willing to adapt to changes in the market. On the flip side, those that had closed offices and laid off personnel to maintain profits in 2009 were less able to support customer demands.

In 2010, the transportation and logistics industry began to rebound ahead of the economy as a whole, with many transportation companies seeing strong growth figures. This was mainly driven by 2009's depressed inventories. For many products sold in 2010, there simply was no inventory. Companies therefore had to reach back to the beginning of their supply chain - moving components from Asia or other origin points, to manufacturing plants in the U.S., to distribution centers, and eventually to the customer. This meant that our industry enjoyed a significantly higher growth rate than the economy as a whole. As inventories stabilize, however, this favored status will begin to dissipate.

What 2011 Will Bring

We can expect continued growth in 2011, but at a much more measured pace than what was seen in 2010.

The late spring and early summer will likely bring rising fuel prices. But it's unlikely they'll be drastic enough to seriously impact the economy and our industry. Rather, we foresee that the greatest challenges to be faced will be surrounding customer expectations and service.

Customers are savvier about their true supply chain costs than ever before. They used to think solely about cutting costs within their shipping division to save on transportation and logistics. This brought the industry into the world of reverse auctions and other means to drive down costs on a per shipment basis. But today, more customers are looking at their business costs holistically. It is no longer enough for a logistics manager to point to a savings of a few pennies per pound. He or she must now show value to the entire production process. The good news is, in some cases this broader perspective means customers are actually spending more on their supply chain in order to gain efficiencies in their manufacturing or processing divisions.

In 2011, customers will continue to look at their costs under a microscope, and will be expecting more value from their transportation dollars. They'll demand deeper insight into their supply chain and greater communication with their providers in order to achieve their broader goals.

Our security challenges will also continue to loom large in 2011, perhaps reaching a head, as terrorist threats prompt officials in Washington, D.C. and around the world to rethink air cargo security. We should see movement toward expanding the 100-percent passenger cargo screening mandate to freighter airliners in 2011. Whether the issue is screening, or maintaining the integrity of the known shipper database, or whatever else arrives at our doorstep, the TSA, our customers and most importantly the public, will expect us to evolve nimbly around new security policies and requirements.

How to Maximize Your 2011 Success

A key differentiator for successful transportation and logistics companies in 2011 will be delivering personalized customer service on each and every shipment. Companies that commit to this mantra will be well-positioned to create the value and build the trust that customers are seeking in 2011. Keep in mind the following tactics:

A customer never forgets. Do what you said you would do. Customers tend to have a longer memory than many companies might think. This can be a blessing and curse. They will remember you if you're there for them, show you care, and demonstrate that you intend to stay in business and service their freight. However, customers will also remember a brush-off and poor service. They remember what you promised, and they certainly remember what you delivered. This is why it's crucial to not skimp on your operations and to set expectations appropriately.

Embed yourself. Get to know your customers' businesses as well as you know your own. This means more than simply what freight goes where - it often means understanding why. If you understand a customer's entire production and distribution processes, you can begin to devise creative solutions for their business challenges. Determine not only what their shipping needs are, but what their shipping problems are, and work hand-in-hand with them to solve their challenges in ways they hadn't thought of. If you can do this, you will stop being a vendor, and start being a partner.

Earn trust. Make sure your customers know you are on their side, even when it means less business for you in the short term. Know why your customer has, say, 18 air shipments every night. Find the most cost-effective way to ship that freight on the ground - even if it means less profit on a certain shipment. This solidifies your customer relationship, helping foster loyalty and build trust. Would you rather have a non-loyal customer that provides a quick, one-and-done revenue boost, constantly choosing a transportation provider based on price, or a loyal customer that's moderately profitable over the long haul of your business?

Foster open communication. Whether it is about a particular shipment, or a new way of looking at an entire supply chain, communication matters. As customers become more concerned about their supply chain efficiencies and security, they'll demand increased visibility into their shipping operations. Maintain open communications with your customers, constantly keeping them apprised of what inventory they have on hand, where it is, how quickly they can get to it, etc. Inform them of changes you're making to comply with any new security policies. Show you are a partner committed to their business's success.

Taken together, these approaches can help ensure you're providing the service levels to enable your business to weather what is likely to be a challenging economic environment in 2011.

Source: Pilot Freight Services

For our industry, 2010 was certainly not as bleak as the prior two years. But it wasn't time to exhale either. While the U.S. economy grew 2.6 percent in the third quarter, the jury is still out as to whether this growth will be sustained, sputter out, or worse, dissolve into another recession.

For transportation and logistics companies, this means that customer scrutiny of our services and pricing will continue to be as intense as it has been since the bottom fell out two years ago. In fact, in many cases, customers who have learned how to maximize their vendor and partner investments will be putting their negotiation skills to good use in 2011.

This increasingly competitive environment, coupled with rising fuel costs and budget cutbacks, could make the pressure we experienced in 2010 pale in comparison to what we're going to face in the coming year.

Companies that will be successful in 2011 will put a strong emphasis on value and customer service. It sounds simple. But taking care of the basics will ensure customers get, and see, value for their transportation dollars - and that's the key to winning and retaining business in this environment.

Let's drill into that more. Here's a look at the year behind us, the year ahead, and the four areas of your business you should look at to ensure you'll win in 2011.

How We'll Remember 2010

Transportation and logistics was one of the industries hardest hit by the recession. Inventories plummeted, pricing pressures escalated, and idle capacity soared.

Transportation companies that took a hard look at the way they did business and ratcheted up the value they were providing customers were the ones that did well in 2010. These companies faced the recession head-on. They were willing to look beyond short-term profitability to make the hard decisions necessary to continue to serve their customers. They maintained the staffing necessary to perform when needed. They kept offices open despite some losses, and were willing to adapt to changes in the market. On the flip side, those that had closed offices and laid off personnel to maintain profits in 2009 were less able to support customer demands.

In 2010, the transportation and logistics industry began to rebound ahead of the economy as a whole, with many transportation companies seeing strong growth figures. This was mainly driven by 2009's depressed inventories. For many products sold in 2010, there simply was no inventory. Companies therefore had to reach back to the beginning of their supply chain - moving components from Asia or other origin points, to manufacturing plants in the U.S., to distribution centers, and eventually to the customer. This meant that our industry enjoyed a significantly higher growth rate than the economy as a whole. As inventories stabilize, however, this favored status will begin to dissipate.

What 2011 Will Bring

We can expect continued growth in 2011, but at a much more measured pace than what was seen in 2010.

The late spring and early summer will likely bring rising fuel prices. But it's unlikely they'll be drastic enough to seriously impact the economy and our industry. Rather, we foresee that the greatest challenges to be faced will be surrounding customer expectations and service.

Customers are savvier about their true supply chain costs than ever before. They used to think solely about cutting costs within their shipping division to save on transportation and logistics. This brought the industry into the world of reverse auctions and other means to drive down costs on a per shipment basis. But today, more customers are looking at their business costs holistically. It is no longer enough for a logistics manager to point to a savings of a few pennies per pound. He or she must now show value to the entire production process. The good news is, in some cases this broader perspective means customers are actually spending more on their supply chain in order to gain efficiencies in their manufacturing or processing divisions.

In 2011, customers will continue to look at their costs under a microscope, and will be expecting more value from their transportation dollars. They'll demand deeper insight into their supply chain and greater communication with their providers in order to achieve their broader goals.

Our security challenges will also continue to loom large in 2011, perhaps reaching a head, as terrorist threats prompt officials in Washington, D.C. and around the world to rethink air cargo security. We should see movement toward expanding the 100-percent passenger cargo screening mandate to freighter airliners in 2011. Whether the issue is screening, or maintaining the integrity of the known shipper database, or whatever else arrives at our doorstep, the TSA, our customers and most importantly the public, will expect us to evolve nimbly around new security policies and requirements.

How to Maximize Your 2011 Success

A key differentiator for successful transportation and logistics companies in 2011 will be delivering personalized customer service on each and every shipment. Companies that commit to this mantra will be well-positioned to create the value and build the trust that customers are seeking in 2011. Keep in mind the following tactics:

A customer never forgets. Do what you said you would do. Customers tend to have a longer memory than many companies might think. This can be a blessing and curse. They will remember you if you're there for them, show you care, and demonstrate that you intend to stay in business and service their freight. However, customers will also remember a brush-off and poor service. They remember what you promised, and they certainly remember what you delivered. This is why it's crucial to not skimp on your operations and to set expectations appropriately.

Embed yourself. Get to know your customers' businesses as well as you know your own. This means more than simply what freight goes where - it often means understanding why. If you understand a customer's entire production and distribution processes, you can begin to devise creative solutions for their business challenges. Determine not only what their shipping needs are, but what their shipping problems are, and work hand-in-hand with them to solve their challenges in ways they hadn't thought of. If you can do this, you will stop being a vendor, and start being a partner.

Earn trust. Make sure your customers know you are on their side, even when it means less business for you in the short term. Know why your customer has, say, 18 air shipments every night. Find the most cost-effective way to ship that freight on the ground - even if it means less profit on a certain shipment. This solidifies your customer relationship, helping foster loyalty and build trust. Would you rather have a non-loyal customer that provides a quick, one-and-done revenue boost, constantly choosing a transportation provider based on price, or a loyal customer that's moderately profitable over the long haul of your business?

Foster open communication. Whether it is about a particular shipment, or a new way of looking at an entire supply chain, communication matters. As customers become more concerned about their supply chain efficiencies and security, they'll demand increased visibility into their shipping operations. Maintain open communications with your customers, constantly keeping them apprised of what inventory they have on hand, where it is, how quickly they can get to it, etc. Inform them of changes you're making to comply with any new security policies. Show you are a partner committed to their business's success.

Taken together, these approaches can help ensure you're providing the service levels to enable your business to weather what is likely to be a challenging economic environment in 2011.

Source: Pilot Freight Services