One thing we all take for granted in the US is the incredible transportation and logistics infrastructure we have. We can order something from virtually anywhere on the continent and know when it will be delivered to our door. As a result, we can practice just in time inventory and improve our working capital positions. Well, unless you’re willing to pay more for guaranteed deliveries, you better build some slack into your JIT and prepare for shipments not to arrive when scheduled. We have already had several issues in the past few weeks, both inbound and outbound, with product not arriving as expected. In classic “the power pendulum has swung our way” behavior, the freight carriers that were involved shrugged their shoulders and said, “Next time, pay for guaranteed delivery.” Estimated delivery dates were assumed to be the real delivery date for years. Not anymore. It’s not fun telling a customer the shipment that was supposed to arrive 2 days ago will get there tomorrow. It’s even less fun not being able to run a job because the material is still in a freight terminal somewhere.
Despite the recent drop in oil prices, freight rates are going up. Regulatory changes, driver shortages, and consolidation all play a role in freight costs increasing. UPS has announce a 4.9% increase effective December 29. By sheer coincidence, Fed Ex has also announced a 4.9% increase, effective January 5, 2015. If this isn’t classic duopoly behavior, I don’t know what is. Additionally, both are also introducing dimensional weight (DIM weight) pricing. If you haven’t paid attention to this stealth price increase, please read: http://www.ups.com/content/us/en/resources/ship/packaging/dim_weight.html?WT.mc_id=VAN701060. While DIM Weight won’t have a huge impact on labels, it will raise rates on lighter packaging products. Be ready.
In the past, we’ve usually had a rogue freight company that wanted to pick up market share and did so via aggressive pricing. On the parcel side, we’ve basically got a duopoly. DHL’s decision to pull out has left few alternatives. On the LTL and truckload side, consolidation has removed a lot of the aggressive players. Additionally, the economy continues to get better, raising demand. Add it all up and we are going to enter an inflationary environment for freight costs. The dollars involved will be real but the “soft” costs of adjusting inventory and ordering patterns and stock outs will be where the real pain is. Start talking to your customers now about managed inventory programs and other things you can do that your competitors can’t. You don’t want to wait until your customer calls you.