The transportation and logistics industry: on a roll
As consumer buying drives a surge in freight traffic, companies must look for balanced growth
4 minute read
- Rising demand and changes in consumer behavior could mean extended growth for the transportation and logistics industry
- A time of rapid change also brings risks, and companies that make hasty decisions could face setbacks
- A well-thought-out growth strategy is essential for capturing the right opportunities
Companies that move freight are benefiting from fundamental shifts in consumer spending. Since the start of the pandemic, people have spent less on services such as travel and more on goods that need to be transported. A more seismic change is the surge in online shopping, a trend that was already underway but that has been accelerated by the pandemic.
All of which means that the transportation and logistics industry, which kept America supplied with vital goods through the early months of the coronavirus, appears poised for extended growth in a post-pandemic economy. Michael Letsch and William Zaleski, Senior Relationship Managers for Transportation and Logistics, Bank of America, share their insights on what’s ahead and why new demand brings both opportunity and risk.
What are the greatest opportunities for the transportation and logistics industry?
As online shopping grows, consumers expect faster delivery and greater convenience than ever before. They want the option of home delivery or ordering online and picking up at the store the same day. Manufacturers and retailers trying to meet those demands are beefing up inventories and rethinking delivery routes — all of which creates volume and opportunity for transportation and logistics companies.
Instead of delivering a commodity-type service that simply hauls goods from a port to a distribution center, carriers can offer more customized service, helping manufacturers and retailers navigate these new and more complex delivery needs. And along with that higher level of service comes the opportunity to charge more and earn higher margins.
Third-party logistics providers — contractors who manage traffic for external clients — are bringing new efficiencies to a paperwork-driven industry. They’re investing strategically in technologies that offer greater visibility into where goods are as they move through the supply chain. Meanwhile, carriers that invest strategically in new equipment could find opportunities for new business. For example, as consumers’ comfort level with online purchasing grows, they are buying larger items such as major appliances and home gyms, which a few years ago they would have bought only in person from a retailer. New equipment designed to handle bigger, bulkier items could help a carrier capture more of that home delivery market.
What challenges do companies face in preparing for the new economy?
It’s not easy navigating a fast-changing market, and the opportunities we’ve described come with risks. Companies concerned about missing out could be stretched thin by pursuing new business randomly or too aggressively. The spot market — offering one-time loads for a variety of customers at attractive daily rates — could help carriers maximize profits, but not if it jeopardizes valued relationships and long-term contracts with existing customers. And if a company invests heavily in new trucks to increase capacity, where will that leave them the next time the industry takes a downturn?
Similar risks apply to technology investments. Advanced systems can improve billing and payment speed or reduce insurance premiums by improving driver safety. Yet the last thing a company needs is adding expensive technology only to learn it’s not compatible with their existing systems and creates confusion for themselves and their customers.
Labor is a perennial challenge for trucking companies. Even after the spike in national unemployment during the pandemic, carriers are struggling to find and keep enough drivers to handle increased business. Unlike rail, where you can simply add extra cars, bigger loads in trucking require additional trucks and extra drivers. Driverless vehicles hold promise, but those are years away. To address immediate needs, carriers are partnering with driver schools to help boost the supply.
What can companies do now to secure a better future?
A careful strategy for growth is essential to taking advantage of the right opportunities while avoiding those that might sidetrack a company.
Now is the time for management teams to think carefully about which new customers, types of freight, regions or technologies can help them grow over the long term.
Consider one carrier that grew from a single operating location to five over the course of several years. With each expansion, the owner knew exactly why that location was important and what it would add to the company. It was all about due diligence, building relationships and following a strategic plan. That’s the level of planning needed in today’s environment.
Discussions should involve not just internal management, but also outside experts such as a legal team, accountants and a banker, to make sure decisions are analyzed from every angle. While this could be a time for expansion, some companies may find that it makes sense to use cash reserves for other purposes, such as paying down debt on equipment they’ve bought. A conversation with a banker could help determine the best way to strengthen the balance sheet for a successful future.
- Logistics & supply chain
- Process management
Michael Letsch, Senior Relationship Manager for Transportation and Logistics, Bank of America
William Zaleski, Senior Relationship Manager for Transportation and Logistics, Bank of America