"U.S. Economy Picks Up Steam." That was the headline recently in the Wall Street Journal. many other economic indicators are pointing towards positive trends. In reality, after several months of progressive movement transportation stocks have been flat the past several weeks. Freight tonnage is at the 13 -year high but in spite of all the financial growth seasoned economists are still at odds whether or not we will experience a second dip. Why the concern with all these positive trends?
Just like every cloud has a silver lining, positive trends have their pitfalls as well. Let's reflect on what has transpired as of late. During the last year fuel prices have escalated to the point of re-enactment of fuel surcharges. This adds work as well as risk to the profit margins within any industry. Additionally, tire costs have also increased in excess fo 32% adding another peril to the equation. Without good procurement processes/ controls in place one tire can cost in excess of $500.00. Many companies are attempting to correct their extended life-cycle situations due to the recent economic downturn by making capital investments on new equipment, all which have arrived at a significantly higher cost.
The transportation industry is a leading (not a lagging) indicator in regards to the economic cycles and fluctuations, whether positive or negative, they immediately impact the industry. Moreover, with the taste of the recession still lingering as well as the economic struggles, leaders are still seeking cost-cutting initiatives. Cash flow is the leading cause of business failures and leaders need to have a plan in place to proactively make adjustments to variable costs in an industry where margins are as thin as ice. The current economic conditions have shifted control away from the suppliers back into the hands of the buyer (transportation industry) when they are the busiest they've been in a long time. In short, one of the cost-cutting measures should consist of some contractual housekeeping, which should include reviewing all procurement contracts and service agreements such as fuel, tires, parts, and vendor services. There is not time like the present when the opportunity is in your corner. In short, transportation companies can't afford not to review all their respective key cost-drivers.