Supply Chain Issues for 2015

2014, My Predictions and How They turned out, 2015 to follow this section

Before I attempt to look ahead, let’s see how cloudy my crystal ball was back in December 2013. Here is what I predicted and what I missed.

I predicted the Hours of Service change would have minimal effect. I was half right. It had almost no impact on short distance drivers, but changes in 34 restart rule did affect long distance operations. Enough so, that Congress suspended the changes in the rules effective January 1, 2015.

Electronic log regulations would be issued. They were proposed but not finalized.

I did not think same day delivery would take off. It has in limited versions in big metro areas. For a limited market it is important.

The enlargement of the Panama Canal would have a significant effect. The Florida East Coast railroad has moved to direct port operations at Miami in anticipated of the delayed opening of the enlarged canal in early 2015. I will write about this more in my issues of 2015.

The Keystone Pipeline would be approved. It did not happen and frankly, it was only critical in political circles not operational circles, as rail provided more flexible transport services.

I predicted petroleum by rail would rise with increased regulatory demand for safe practices. Both of these happened.

I predicted supply chain software would become a mature product. With industry consolidation, this appears to be the case.

I totally missed the steep price decline of petroleum, something that in retrospect was likely to happen due to the increase product production. I did not articulate that the truck driver shortage would be as strong as it was.

Now, About 2015

The big issues of 2015 will be response to the west coast port problems, and transportation capacity issues.

In retrospect, believe both the unions and the management of the west coast ports will feel it was a mistake not to do a strike or a lockout, to speed up the resolution of the issues involved. There is nothing more costly to a user of transportation services than unpredictable delays, increased transportation and inventory costs and lost business revenue resulting from delays. It will force shippers to go to alternatives like Canada, Mexico and the Panama Canal, even before its expansion starts. A long term transportation shift is in the offing. Florida East Coast railroads Port of Miami intermodal investments may start paying off even before the Panama Canal expands, because of this. So will the Norfolk Southern and CSX intermodal investments in the eastern port of the country.

Despite a cooling world economy, a significant slowly of fracking petroleum growth, in the US, rail and truck capacity overall will be stressed. Rails are having troubles with present volumes. They are responding with large capital budgets. While these single line investments help, bottlenecks in Chicago and other interchange points requiring joint cooperation of railroads and government, which will continue to be difficult to execute.

Trucking driver shortages will continue, as long hours and too low wages will continue to hurt the long haul sector. I believe this log jam will start be broken, by a combination of higher driver wages (major carriers increased wages over 10% this past year), and better driver management, allowing drivers to get home more frequently. Shippers will drag their feet on the higher costs, but will be compelled to pay the higher freight costs to get products to their customers timely.

Because of higher e-commerce demands and higher transportation costs, the demand for warehouse space will grow, to get products nearer the customers.

Petroleum prices will gradually increase, as the market tightens and taxes increase on both the federal and state levels to pay for infrastructure repair and expansion.

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