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Outlook For Furniture Industry Transportation 2011

Furniture World Magazine


There will be significant challenges for furniture transportation in 2011 and beyond.

Delivery, Warehousing, Logistics by Dan Bolger

Significant changes have taken place in furniture transportation during recent years and there are plenty of challenges ahead for furniture retailers in 2011 and beyond.

These have manifested in the areas of ocean freight for imports, inbound domestic transportation from manufacturers/distributors, and outbound delivery to retail customers. It will be no surprise to most retailers that transportation will be more expensive; yet concerted efforts on your part, combined with working with your suppliers can effectively minimize the impact.

Before getting into specific steps you can take to make your transportation activities more efficient in 2011, it will be useful to give some definitions.

The USA trucking industry is composed of for-hire carriers and private fleets.
Private Fleets: Private fleets continue to represent the largest sector of the trucking industry. About 200,000 companies (not including farmers) have private fleets as part of their primary business. Approximately 150,000 private fleets have fewer than ten power units. Many of these fleets now also back haul freight for others to reduce empty miles and overall costs.

For Hire Truckload Carriers: For-hire truckload carriers have total revenues of 250-300 billion dollars annually. The industry is highly fragmented and includes companies such as J.B. Hunt, Schneider National, Werner Enterprises, Landstar, Heartland Express, Knight Transportation, Covenant Transport, US Xpress, USA Truck, Celadon. Less than 10% are publicly held companies. Most operate less than 100 trucks and 96% of the for-hire carriers operate less than 20 trucks.

LTL Carriers: The Less-Than-Truckload (LTL) segment is dominated by approximately 25 carriers sharing more than 90% of the market. Major names include: FedEx Freight, YRC National/ Regional, Con-Way Freight, UPS Freight, ABF Freight System, Old Dominion Freight Line, Estes Express and Saia. More than 60% of the capacity is with publicly held carriers whose hub and spoke operations result in significant fixed costs. Together they handle a relatively small portion of furniture shipments, but handle a significant portion of the accessories and skidded freight that doesn’t come by parcel companies such as UPS and FedEx ground.

Intermodal Transport: The transfer of products involving multiple modes of transportation is a mix of railroad suppliers, consolidators and for hire motor carriers such as JB Hunt and Schneider. Intermodal involves both domestic freight and the imported products coming to North America from offshore. The ultimate consumer does not care whether their furniture is delivered by intermodal transport or by any other means, but a better understanding on your part will help you to manage your business more profitability.

Diminished capacity: For several years the USA transportation industry has been reducing capacity. Commercial and private fleets have scrapped older trucks and many vintage trucks have been exported. Until the middle of 2010’s 4th quarter, orders for new trucks and trailers have been very low. In fact, the nation has less overall capacity than two years ago and there were spot shortages throughout 2010 that will continue into 2011. The for-hire carriers are wary of expanding their fleets out of fear of another business downtown. Another fear is recent new government regulations will reduce the driver pool by the equivalent of 400,000 drivers.

Sticker Shock: If you have not purchased or leased new trucks for a while, be prepared for sticker shock. There have been three EPA regulatory updates since 2004. These changes and related costs associated with compliance have boosted the typical straight 24-26 ft. medium duty delivery truck price from $65,000 to the mid $80,000 range. Generic line-haul tractors to pull your trailers that cost $95,000 in 2004 are now approaching $117,000. And those costs don’t include the 12% federal excise tax. There are lots of bells and whistles on the new trucks that are all very good but they also require more sophisticated maintenance.

Leasing: You may be at the point where you must replace or expand your fleet. Many retailers providing their own deliveries are turning to truck leasing for several reasons. The large leasing companies’ bulk buying leverage is a major advantage. In addition, leasing allows retailers some freedom from handling maintenance and repair problems. A pleasant surprise to some recent buyers is the amount of prior year new unlicensed trucks still on dealer lots.

Outsourcing Trends: Outsourcing your delivery is also an option. This topic is beyond the scope of this update but has been actively reviewed by many retailers. The national trend among larger home furnishings retailers is clearly to outsource deliveries. Some have opted to use a hybrid system, contracting for line-haul between major markets from a central distribution center to regional delivery centers.

Ocean Freight: During the economic downturn the ocean carriers removed many ships from service and slowed the speed of operating vessels to cut costs. Some capacity has been restored but all indications are that the ocean carriers will keep a tight rein on capacity throughout 2011. Significant changes are expected with the Panama Canal expansion opening in 2014. This will allow larger ships to deliver Asian cargo to deep East Coast ports.

Domestic intermodal volume is running well ahead of last year with high demand for 53 ft. containers and chassis. The Union Pacific recently announced their purchase of 9,000 plus units for this demand. Consolidators are also adding units to handle expected volume increases, potential driver shortages and higher fuel costs.

Pricing Trends for 2011

In 2011, regardless of mode, fleet operators will face extreme cost pressures. Deferred maintenance must be done, equipment must be replaced and driver recruits must be found and trained. Everything from tires to road tolls will be higher.
Carriers that serve furniture clients are tracking their costs better than ever before. If you delay loading and unloading, demand that they hire lumpers, don’t package to minimize damage or don’t palletize when possible, the added costs will be incorporated into the operating ratio. Ultimately you will have to pay.

LTL carriers have published General Rate Increases (GRI) in the 5 to 7% range. Particular emphasis has been placed to increase minimum charges. Charges in the $40-50 range are increasingly rare.

FedEx and UPS published new rates effective January 4th. Their announcements indicate an average increase of 4.9% but analysts believe it is in the 7.5% range for most shippers due to increased minimum charges, new residential delivery charges and changing the dim weight formula.

Daniel Bolger P.E. provides operations consulting services to clients throughout North America. FURNITURE WORLD Magazine readers can contact him at bolger@furninfo.com or phone 740-503-8875. For more information on transportation, logistics and furniture warehousing topics, go to FURNITURE WORLD Magazine’s website www.furninfo.com to read all of Dan’s articles.

Dan will be speaking at Las Vegas and is available for consultations during Market by appointment.