Finding ways to get transportation growth and profitability back on track
Transportation is at a crossroads
Like virtually all companies striving to achieve success in today's low-growth economy, those in the transportation industry face a number of challenges. Opportunities are out there, but currently, multiple issues and restrictions—some of them increasing in severity—are impacting companies' ability to grow, and even maintain, the top line.
Several issues are immediately notable on the labour side of the equation. To begin with, there is not only a chronic shortage of drivers, but truck driving is not a particularly attractive option for tomorrow's drivers, which signals that staffing problems will only grow down the road. Moreover, evolving hours of service regulations are further restricting the lengths of time that drivers may operate a vehicle. While these are certainly positive safety measures, they can also increase driver administrative work while reducing "on-the-road" productivity, which are challenges when drivers are in short supply.
On the industry side, costs—in the form of equipment and driver/owner operator labour—continue to increase, so that even if a large potential workforce were available, many companies would be hamstrung by a lack of affordability.
External economic conditions are also a factor—and are perhaps the most difficult to predict and manage. Organizations must deal with not only the continued fluctuation of the loonie versus the US dollar, which can have a significant effect on how much manufacturing product actually gets shipped, but the hollowing out of the manufacturing sector in Central Canada has exacerbated the imbalance in cross-border freight movements and created conditions in support of U.S. trucking companies' expansion in the Canadian market.
The road ahead
Today's challenging transportation environment notwithstanding, there are a number of steps organizations can take to realize a range of impending future opportunities.
Clearly, the news is not all negative when you take the long-term view. The US Freight Transportation Forecast recently released by the American Trucking Association (ATA) predicted major growth in the trucking industry by 2022. With the trucking sector accounting for 81 percent of transportation companies' total revenue and 67 percent of tonnage as of 2010, this increase in trucking bodes well for industry-wide growth. And although the forecast also suggests that rail transportation will see a rise in tonnage and revenue—increasing from 14.6 percent to 15.3 percent of the industry's total by 2022—it also calls for an overall industry increase, with revenue rising nearly 66 percent and tonnage increasing 24 percent by the same year.1
Although current growth may be difficult, this forecast suggests that transportation companies would be well served to focus on long-term logistics, supply chain strategies and other value-added service offerings to be ready to seize the opportunities to come. With both trucking and industry-wide growth in the offing, improving 3PL logistics capabilities should help drive profitability. In fact, 4PL may prove an even wiser move for companies looking to get a leg up on the competition and increase revenues. With its more comprehensive supply chain management and efficiency capabilities, 4PL can help address endemic issues, such as the accelerating expansion of global shipping, the complex structure of supply chains and the resulting logistics challenges that go along with both.
Benefits of benchmarking
After missing out on savings of 10 to 15 percent on its overall freight spend due to procurement savings oversights, one company began using a vetting process that outlines a set of expectations for carriers in its request for proposals. It has since been able to protect previous supplier relationships while saving around four to six percent.2
Improved results may also be just around the corner
The long-term view, then, holds promise; but that doesn't mean you can't drive growth and profitability even in today's environment. This means focusing consistently on key industry metrics—increasing volume, controlling costs and managing freight rates:
- If organic growth is not a realistic option for growing volume given your business model and competitive environment, consider M&A—purchasing a competitor—to achieve the same result.
- Expanding service offerings through vertical and/or horizontal integration can also increase volume.
- Focus on revenue improvement, which may include raising rates, putting it somewhat differently—if you have limited capacity—selling your services to the highest bidder. Focus here on evaluating your customer base with respect to rates, contract terms (i.e., who pays for empty miles, wait times, cross border delays, trailer retention), payment terms, etc.
- Look at reducing costs and
- Streamlining processes to do more with less
- Using industry benchmarking data
- Focusing on productivity improvement initiatives (processes, behaviour, systems)
- Improving fleet management (lease vs. buy decisions, lease buy-out rates, etc.)
- Engaging in process improvement— such as current state observations; changing processes or methods; systems improvement initiatives; proactive management (planning, measuring, fixing)
Finally, make sure you strategize around adding new customers, as well as maintaining and improving existing relationships. There is a lot of business out there—companies just need to find better ways to acquire it and service it profitably.
Moving forward with confidence
No matter what innovations the industry may see or what opportunities emerge, transportation companies must be positioned to adapt and take action to seize them. This means not only looking at new and improved services, but at enhancing existing operational systems and processes. Those whose strategies include both long-term preparation and short-term improvement will have an excellent chance to maintain ongoing success while looking forward to a prosperous future.
How can we help?
To help your company grow in the face of significant industry constraints, Grant Thornton offers:
- Comprehensive, collaborative analysis of your organization's key strengths and gaps
- Hands-on, front-line experience in process observation, process improvement, change management and active supervision, all leading to improved management and employee commitment to competitive success
- A range of methods, processes and tools designed to help you achieve maximum efficiency, including volume forecasting, resource planning, cycle controls, daily and weekly planning meetings, operating reports and daily schedule control
- Ongoing process improvement delivered through a structured and proven approach
We can also help with:
- corporate finance,
- tax services,
- strategic advisory services,
- productivity improvement,
- succession planning,
- mergers and acquisition services.
1 The American Trucking Association (ATA). ATA U.S. Freight Transportation Forecast to 2025. (2014).
2 Genco.com. "Transportation Logistics Benefits From Benchmarking Exercises." Accessed at http://www.genco.com/Logistics-Articles/article.php?aid=800872737 on May 22, 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.